10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

x  Quarterly report under section 13 or 15(d) of the Securities Exchange Act of 1934

For the Quarterly Period Ended June 30, 2011

or

¨  Transition report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934

For the Transition Period from            _________to_________

Commission File Number 33-76644

COMMUNITYCORP

(Exact name of registrant as specified in its charter)

South Carolina	57-1019001
(State or other jurisdiction of incorporation)	(I.R.S. Employer Identification No.)

1100 N. Jefferies Boulevard

Walterboro, SC 29488

(Address of principal executive offices, including zip code)

(843) 549-2265

(Issuer’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.  YES xNO ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  YES  x NO o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o	Accelerated filer o
Non-accelerated filer ¨	Smaller reporting company x
(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  YES o NO x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date:

233,003 shares of common stock, $5.00 par value, as of July 31, 2011

COMMUNITYCORP

Index

		Page No.
PART I. - FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
	Condensed Consolidated Balance Sheets – June 30, 2011 and December 31, 2010	3
	Condensed Consolidated Statements of Operations - Three and six months ended June 30, 2011 and 2010	4
	Condensed Consolidated Statements of Changes in Shareholders' Equity and Comprehensive Income - Six months ended June 30, 2011 and 2010	5
	Condensed Consolidated Statements of Cash Flows - Six months ended June 30, 2011 and 2010	6
	Notes to Condensed Consolidated Financial Statements	7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations		19
Item 3. Quantitative and Qualitative Disclosure About Market Risk		27
Item 4. Controls and Procedures		27
PART II. - OTHER INFORMATION
Item 1. Legal Proceedings		27
Item 1A. Risk Factors		27
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		27
Item 3. Defaults Under Senior Securities		28
Item 4. Removed and Reserved		28
Item 5. Other Information		28
Item 6. Exhibits		28

COMMUNITYCORP

Condensed Consolidated Balance Sheets

	June 30,			December 31,
	2011			2010
	(Unaudited)			(Audited)
Assets:
Cash and cash equivalents:
Cash and due from banks	$	3,748,668		$	4,206,974
Interest bearing deposits		12,900,487			9,966,826
Federal funds sold		1,775,000			2,004,000
Total cash and cash equivalents		18,424,155			16,177,800
Time deposits with other banks		750,000			1,000,000
Investment securities:
Securities available-for-sale		31,273,755			26,955,350
Securities held-to-maturity (estimated fair value of $309,287 in 2011 and $309,023 in 2010)		299,903			299,885
Nonmarketable equity securities		292,200			302,300
Total investment securities		31,865,858			27,557,535
Loans receivable		100,357,304			105,297,684
Less allowance for loan losses		(1,913,210	)		(2,019,497	)
Loans receivable, net		98,444,094			103,278,187
Premises and equipment, net		2,824,224			2,903,212
Accrued interest receivable		799,733			785,859
Other real estate owned		2,985,528			2,764,189
Other assets		953,947			1,361,893
Total assets	$	157,047,539		$	155,828,675
Liabilities:
Deposits:
Noninterest-bearing transaction accounts	$	12,673,102		$	14,077,860
Interest-bearing transaction accounts		21,931,962			21,295,198
Money market savings accounts		4,411,096			4,116,167
Savings		15,693,014			14,452,567
Time deposits $100,000 and over		46,465,066			46,142,153
Other time deposits		37,016,957			37,499,876
Total deposits		138,191,197			137,583,821
Accrued interest payable		354,301			451,331
Other liabilities		154,896			154,686
Total liabilities		138,700,394			138,189,838
Shareholders’ Equity:
Preferred stock, $5 par value, 3,000,000 shares authorized and unissued
Common stock, $5 par value, 3,000,000 shares authorized; 300,000 shares issued		1,500,000			1,500,000
Capital surplus		1,737,924			1,737,924
Retained earnings		19,036,777			18,782,807
Accumulated other comprehensive income (loss)		389,586			(64,752	)
Treasury Stock (66,997 shares at cost)		(4,317,142	)		(4,317,142	)
Total shareholders’ equity		18,347,145			17,638,837
Total liabilities and shareholders’ equity	$	157,047,539		$	155,828,675

See notes to condensed consolidated financial statements.

3

COMMUNITYCORP

Condensed Consolidated Statements of Operations

(Unaudited)

	Three Months Ended					Six Months Ended
	June 30,					June 30,
	2011		2010			2011		2010
Interest income:
Loans, including fees	$	1,574,644	$	1,685,719		$	3,138,627	$	3,521,176
Securities		212,624		199,274			410,532		413,857
Other interest income		10,106		23,725			20,909		36,583
Total		1,797,374		1,908,718			3,570,068		3,971,616
Interest expense:
Deposit accounts		376,233		559,978			780,820		1,165,237
Other interest expense		-		-			-		1
Total		376,233		559,978			780,820		1,165,238
Net interest income		1,421,141		1,348,740			2,789,248		2,806,378
Provision for loan losses		313,000		846,000			538,000		1,211,000
Net interest income after provision for loan losses		1,108,141		502,740			2,251,248		1,595,378
Noninterest income:
Service charges		102,076		111,161			205,720		210,473
Other income		32,126		29,083			64,432		70,524
Total		134,202		140,244			270,152		280,997
Noninterest expenses:
Salaries and benefits		484,380		516,696			982,578		1,010,799
Net occupancy expense		81,274		62,314			146,262		125,245
Equipment expense		91,448		87,612			182,228		180,993
Other operating expenses		325,367		310,292			740,061		613,163
Total		982,469		976,914			2,051,129		1,930,200
Income (loss) before taxes		259,874		(333,930	)		470,271		(53,825	)
Income tax provision		66,300		(97,250	)		99,800		(22,250	)
Net income (loss)	$	193,574	$	(236,680	)	$	370,471	$	(31,575	)
Earnings (loss) per share:
Weighted average common shares outstanding		233,003		233,033			233,003		233,504
Net income (loss) per common share	$	0.83	$	(1.02	)	$	1.59	$	(0.14	)

See notes to condensed consolidated financial statements.

4

COMMUNITYCORP

Condensed Consolidated Statement of Shareholders’ Equity and Comprehensive Income

For The Six Months Ended June 30, 2011 and 2010

(Unaudited)

							Accumulated
							Other
							Comprehensive
	Common stock				Capital		Income			Retained			Treasury
	Shares		Amount		Surplus		(Loss)			Earnings			Stock			Total
Balance, December 31, 2010		300,000	$	1,500,000	$	1,737,924	$	(64,752	)	$	18,782,807		$	(4,317,142	)	$	17,638,837
Cash dividends paid ($ .50 per share)											(116,501	)					(116,501	)
Net income for the period											370,471						370,471
Other comprehensive income, net of tax expense of $239,308								454,338									454,338
Comprehensive income																	824,809
Balance, June 30, 2011		300,000	$	1,500,000	$	1,737,924	$	389,586		$	19,036,777		$	(4,317,142	)	$	18,347,145
Balance, December 31, 2009		300,000	$	1,500,000	$	1,737,924	$	286,072		$	18,440,398		$	(4,218,741	)	$	17,745,653
Cash dividends paid ($ .50 per share)											(117,001	)					(117,001	)
Net loss for the period											(31,575	)					(31,575	)
Other comprehensive income, net of tax expense of $53,060								100,737									100,737
Comprehensive income																	69,162
Purchase of treasury stock														(98,401	)		(98,401	)
Balance, June 30, 2010		300,000	$	1,500,000	$	1,737,924	$	386,809		$	18,291,822		$	(4,317,142	)	$	17,599,413

See notes to condensed consolidated financial statements.

5

COMMUNITYCORP

Condensed Consolidated Statements of Cash Flows

(Unaudited)

	Six Months Ended
	June 30,
	2011			2010
Cash flows from operating activities:
Net income (loss)	$	370,471		$	(31,575	)
Adjustments to reconcile net income to net cash Provided (used) by operating activities:
Provision for loan losses		538,000			1,211,000
Depreciation expense		112,270			118,895
Loss on sale of other real estate owned		21,432			-
Net premium amortization of investment securities		13,838			32,825
(Increase) decrease in accrued interest receivable		(13,874	)		13,569
Decrease in accrued interest payable		(97,030	)		(117,789	)
Decrease in other assets		168,638			214,112
Increase in other liabilities		210			33,676
Net cash provided by operating activities		1,113,955			1,474,713
Cash flows from investing activities:
Proceeds from maturities of securities available-for-sale		1,844,296			4,854,116
Purchases of securities available-for-sale		(5,482,911	)		(1,599,200	)
Proceeds from maturities of securities held-to-maturity		-			265,000
(Increase) decrease of nonmarketable equity securities		10,100			(100	)
Net decrease in loans to customers		3,758,104			3,474,217
Net decrease in time deposits in other banks		250,000			250,000
Proceeds from sales of other real estate owned		295,218			-
Purchases of premises and equipment		(33,282	)		(24,828	)
Net cash provided by investing activities		641,525			7,219,205
Cash flows from financing activities:
Net increase (decrease) in demand deposits, interest-bearing transaction accounts and savings accounts		767,382			(2,317,817	)
Net decrease  in time deposits		(160,006	)		(1,088,673	)
Cash dividends paid		(116,501	)		(117,001	)
Purchase of treasury stock		-			(98,401	)
Net cash provided (used) by financing activities		490,875			(3,621,892	)
Net increase in cash and cash equivalents		2,246,355			5,072,026
Cash and cash equivalents, beginning of period		16,177,800			17,694,266
Cash and cash equivalents, end of period	$	18,424,155		$	22,766,292
Cash paid during the period for:
Income taxes	$	50,000		$	-
Interest	$	877,850		$	1,283,027
Supplemental noncash investing and financing activities
Foreclosures on loans	$	537,989		$	-
Net change in valuation allowance - available-for-sale	$	454,338		$	100,737

See notes to condensed consolidated financial statements.

6

Notes to Condensed Consolidated Financial Statements

(Unaudited)

NOTE 1 - BASIS OF PRESENTATION

The accompanying consolidated financial statements have been prepared in accordance with the requirements for interim financial statements and, accordingly, they are condensed and omit disclosures, which would substantially duplicate those contained in the most recent annual report to shareholders.  The financial statements as of June 30, 2011 and for the interim periods ended June 30, 2011 and 2010 are unaudited and, in our opinion, include all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation.  The results of operations for the six months ended June 30, 2011 are not necessarily indicative of the results which may be expected for the entire calendar year.  The financial information as of December 31, 2010 has been derived from the audited financial statements as of that date.  For further information, refer to the financial statements and the notes included in Communitycorp’s 2010 Annual Report.

NOTE 2 - RECENT ACCOUNTING PRONOUNCEMENTS

The following is a summary of recent authoritative pronouncements that could impact the accounting, reporting, and / or disclosure of financial information by the Company.

In July 2010, the Receivables topic of the Accounting Standards Codification (“ASC”) was amended by Accounting Standards Update (“ASU”) 2010-20 to require expanded disclosures related to a company’s allowance for credit losses and the credit quality of its financing receivables. The amendments require the allowance disclosures to be provided on a disaggregated basis.  The Company is required to include these disclosures in its interim and annual financial statements.  See Note. 6.

Disclosures about Troubled Debt Restructurings (“TDRs”) required by ASU 2010-20 were deferred by the Financial Accounting Standards Board (“FASB”) in ASU 2011-01 issued in January 2011. In April 2011 the FASB issued ASU 2011-02 to assist creditors with their determination of when a restructuring is a TDR.   The determination is based on whether the restructuring constitutes a concession and whether the debtor is experiencing financial difficulties as both events must be present.

Disclosures related to TDRs under ASU 2010-20 will be effective for reporting periods beginning after June 15, 2011.

In April 2011, the criteria used to determine effective control of transferred assets in the Transfers and Servicing topic of the ASC was amended by ASU 2011-03.  The requirement for the transferor to have the ability to repurchase or redeem the financial assets on substantially the agreed terms and the collateral maintenance implementation guidance related to that criterion were removed from the assessment of effective control.  The other criteria to assess effective control were not changed.  The amendments are effective for the Company beginning January 1, 2012 but are not expected to have a material effect on the financial statements.

ASU 2011-04 was issued in May 2011 to amend the Fair Value Measurement topic of the ASC by clarifying the application of existing fair value measurement and disclosure requirements and by changing particular principles or requirements for measuring fair value or for disclosing information about fair value measurements.  The amendments will be effective for the Company beginning January 1, 2012 but are not expected to have a material effect on the financial statements.

The Comprehensive Income topic of the ASC was amended in June 2011.  The amendment eliminates the option to present other comprehensive income as a part of the statement of changes in stockholders’ equity.  The amendment requires consecutive presentation of the statement of net income and other comprehensive income and requires an entity to present reclassification adjustments from other comprehensive income to net income on the face of the financial statements.  The amendments will be applicable to the Company on January 1, 2012 and will be applied retrospectively.

Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies are not expected to have a material impact on the Company’s financial position, results of operations or cash flows.

NOTE 3 - RECLASSIFICATIONS

Certain captions and amounts in the financial statements in the Company’s Form 10-Q for the quarter ended June 30, 2010 and Form 10-K for the year ended December 31, 2010 were reclassified to conform to the June 30, 2011 presentation.

7

NOTE 4 - COMPREHENSIVE INCOME

Accounting principles generally require that recognized income, expenses, gains, and losses be included in net income.  Although certain changes in assets and liabilities, such as unrealized gains and losses on available-for-sale securities, are reported as a separate component of the equity section of the balance sheet, such items, along with net income, are components of comprehensive income.

The components of other comprehensive income and related tax effects are as follows:

			Tax
	Pre-tax		(Expense)			Net-of-tax
	Amount		Benefit			Amount
For the Three Months Ended June 30, 2011:
Unrealized gains on securities available-for-sale	$	573,632	$	(197,903	)	$	375,729
Reclassification adjustment for gains (losses) in net income		-		-			-
Other Comprehensive income	$	573,632	$	(197,903	)	$	375,729
For the Three Months Ended June 30, 2010:
Unrealized gains on securities available-for-sale	$	96,016	$	(33,126	)	$	62,890
Reclassification adjustment for gains (losses) in net income		-		-			-
Other Comprehensive income	$	96,016	$	(33,126	)	$	62,890
For the Six Months Ended June 30, 2011:
Unrealized gains on securities available-for-sale	$	693,646	$	(239,308	)	$	454,338
Reclassification adjustment for gains (losses) in net income		-		-			-
Other Comprehensive income	$	693,646	$	(239,308	)	$	454,338
For the Six Months Ended June 30, 2010:
Unrealized gains on securities available-for-sale	$	153,797	$	(53,060	)	$	100,737
Reclassification adjustment for gains (losses) in net income		-		-			-
Other Comprehensive income	$	153,797	$	(53,060	)	$	100,737

Accumulated other comprehensive income consists of the net unrealized gains and (losses) on securities available-for sale, net of the deferred tax effects.

NOTE 5 - INVESTMENT SECURITIES

Securities Available-for-Sale

The amortized cost and estimated fair values of securities available-for-sale at June 30, 2011 and December 31, 2010 were:

	Amortized		Gross Unrealized				Estimated
	Cost		Gains		Losses		Fair Value
June 30, 2011
U.S. Government agencies	$	16,991,360	$	50,450	$	16,648	$	17,025,162
Mortgage-backed securities		2,981,397		67,448		77		3,048,768
Municipals		10,506,211		505,542		11,928		10,999,825
Other		200,000		-		-		200,000
Total	$	30,678,968	$	623,440	$	28,653	$	31,273,755

	Amortized		Gross Unrealized				Estimated
	Cost		Gains		Losses		Fair Value
December 31, 2010
Government-sponsored enterprises	$	13,891,989	$	11,473	$	312,020	$	13,591,442
Mortgage-backed securities		1,842,249		24,286		15,269		1,851,266
Obligations of state and local governments		11,119,970		247,905		55,233		11,312,642
Other		200,000		-		-		200,000
Total	$	27,054,208	$	283,664	$	382,522	$	26,955,350

8

The following is a summary of maturities of securities available-for-sale as of June 30, 2011.  The amortized cost and estimated fair values are based on the contractual maturity dates.  Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without penalty.

	Securities
	Available-For-Sale
	Amortized		Estimated
	Cost		Fair Value
Due in one year or less	$	-		-
Due after one year but within five years		1,831,797		1,883,346
Due after five years but within ten years		18,120,927		18,515,613
Due after ten years		7,744,847		7,826,028
		27,697,571		28,224,987
Mortgage-backed securities		2,981,397		3,048,768
Total	$	30,678,968	$	31,273,755

The following table shows gross unrealized losses and fair value, aggregated by investment category, and length of time that individual securities have been in a continuous unrealized loss position, at June 30, 2011 and December 31, 2010.

	June 30, 2011				December 31, 2010
	Fair		Unrealized		Fair		Unrealized
	Value		Losses		Value		Losses
Less Than 12 Months
Government-sponsored enterprises	$	3,479,060	$	16,648	$	12,379,970	$	312,020
Mortgaged-backed Securities		63,216		77		964,073		15,269
Obligations of state and local governments		-		-		2,151,511		55,233
		3,542,276		16,725		15,495,554		382,522
12 Months or More
Obligations of state and local governments		240,000		11,928		-		-
		240,000		11,928		-		-
Total	$	3,782,276	$	28,653	$	15,495,554	$	382,522

A total of ten available-for-sale securities were in a loss position at June 30, 2011, including one security that had been in a continuous loss position for twelve months or more.  The Company believes, based on industry analyst reports and credit ratings, that the deterioration in value is attributable to changes in market interest rates and not in credit quality and considers these losses temporary.  The Company does not intend to sell these securities and it is more likely than not that the Company will not be required to sell these securities before recovery of their amortized costs.  Management evaluates investment securities in a loss position based on length of impairment, severity of impairment and other factors.

Securities Held-to-Maturity

The amortized cost and estimated fair values of securities held-to-maturity at June 30, 2011 and December 31, 2010 were:

	Amortized		Gross Unrealized				Estimated
	Cost		Gains		Losses		Fair Value
June 30, 2011
Obligations of state and local governments	$	299,903	$	9,384	$	-	$	309,287
December 31, 2010
Obligations of state and local governments	$	299,885	$	9,138	$	-	$	309,023

The following is a summary of maturities of securities held-to-maturity as of June 30, 2011.  The amortized cost and estimated fair values are based on the contractual maturity dates.  Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without penalty.

9

	Securities
	Held-to-Maturity
	Amortized		Estimated
	Cost		Fair Value
Due after one year but within five years	$	99,903	$	100,651
Due after five years but within ten years		200,000		208,636
Total	$	299,903	$	309,287

NOTE 6 - LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES

Major classifications of loans receivable are summarized as follows:

	June 30,		December 31,
	2011		2010
Real estate – construction	$	13,654,980	$	12,674,197
Real estate – mortgage		73,318,790		76,149,357
Commercial and industrial		8,293,690		11,602,305
Consumer and other		5,089,844		4,871,825
Total gross loans	$	100,357,304	$	105,297,684

The loan portfolio consisted of loans having                                                                           :

	June 30,		December 31,
	2011		2010
Variable rates loans	$	2,018,931	$	1,556,700
Fixed rates		98,338,373		103,740,984
Total gross loans	$	100,357,304	$	105,297,684

A summary of the allowance for loan losses for the six months ended June 30, 2011 and year ended December 31, 2010 is as follows:

	June 30,			December 31,
	2011			2010
Balance, beginning of year	$	2,019,497		$	2,053,340
Provision charged to operations		538,000			1,866,000
Recoveries on loans previously charged-off		6,188			11,932
Loans charged-off		(650,475	)		(1,911,775	)
Balance, end of period	$	1,913,210		$	2,019,497

The following is an analysis of the allowance for loan losses by class of loans for the six months ended June 30, 2011 and the year ended December 31, 2010

June 30, 2011

				Real Estate Loans
										Total
										Real
										Estate						Consumer
(Dollars in Thousands)	Total			Construction			Mortgage			Loans			Commercial			and Other
Beginning Balance	$	2,019		$	807		$	404		$	1,211		$	606		$	202
Provisions		538			412			64			476			50			12
Recoveries		6			-			3			3			-			3
Charge-offs		(650	)		(498	)		(77	)		(575	)		(60	)		(15	)
Ending balance	$	1,913		$	721		$	394		$	1,115		$	596		$	202

10

December 31, 2010

				Real Estate Loans
										Total
										Real
(Dollars in Thousands)										Estate						Consumer
	Total			Construction			Mortgage			Loans			Commercial			And Other
Beginning Balance	$	2,053		$	826		$	413		$	1,239		$	616		$	198
Provisions		1,866			746			373			1,119			560			187
Recoveries		12			-			-			-			4			8
Charge-offs		(1,912	)		(765	)		(382	)		(1,147	)		(574	)		(191	)
Ending balance	$	2,019		$	807		$	404		$	1,211		$	606		$	202

At June 30, 2011 and December 31, 2010 the allocation of the allowance for loan losses and the recorded investment in loans summarized on the basis of the Company’s impairment methodology was as follows:

June 30, 2011

			Real Estate Loans
							Total
							Real
(Dollars in Thousands)							Estate				Consumer
	Total		Construction		Mortgage		Loans		Commercial		and Other
Allowance for Loan Losses
Examined for Impairment
Individually	$	411	$	30	$	35	$	65	$	326	$	20
Collectively		1,502		691		359		1050		270		182
Allowance for Loan Losses	$	1,913	$	721	$	394	$	1,115	$	596	$	202
Total Loans
Examined for Impairment
Individually	$	8,338	$	1,708	$	1,141	$	2,849	$	5,311	$	178
Collectively		92,019		11,947		72,178		84,125		2,982		4,912
Total Loans	$	100,357	$	13,655	$	73,319	$	86,974	$	8,293	$	5,090

December 31, 2010

			Real Estate Loans
							Total
							Real
(Dollars in Thousands)							Estate				Consumer
	Total		Construction		Mortgage		Loans		Commercial		and Other
Allowance for Loan Losses
Examined for Impairment
Individually	$	373	$	296	$	25	$	321	$	40	$	12
Collectively		1,646		511		379		890		566		190
Allowance for Loan Losses	$	2,019	$	807	$	404	$	1,211	$	606	$	202
Total Loans
Examined for Impairment
Individually	$	7,703	$	3,162	$	4,121	$	7,283	$	303	$	117
Collectively		97,595		9,512		72,029		81,541		11,299		4,755
Total Loans	$	105,298		12,674		76,150		88,824		11,602		4,872

The Company identifies impaired loans through its normal internal loan review process.  Loans on the Company’s problem loan watch list are considered potentially impaired loans.  These loans are evaluated in determining whether all outstanding principal and interest are expected to be collected.  Loans are not considered impaired if a minimal delay occurs and all amounts due including accrued interest at the contractual interest rate for the period of delay are expected to be collected.

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The following summarizes the Company’s impaired loans by class as of June 30, 2011 and December 31, 2010.

June 30, 2011
			Unpaid
(Dollars in Thousands)	Recorded		Principal		Related
	Investment		Balance		Allowance
With no related allowance recorded:
Real estate
Construction	$	1,578	$	1,578	$	-
Mortgage		829		865		-
Total real estate loans		2,407		2,443		-
Commercial		3,686		4,486		-
Consumer and other		126		126		-
		6,219		7,055		-
With an allowance recorded:
Real estate
Construction		130		315		30
Mortgage		312		466		35
Total real estate loans		442		781		65
Commercial		1,625		4,080		326
Consumer and other		52		52		20
		2,119		4,913		411
Total
Real estate
Construction		1,708		1,893		30
Mortgage		1,141		1,331		35
Total real estate loans		2,849		3,224		65
Commercial		5,311		8,566		326
Consumer and other		178		178		20
Total	$	8,338	$	11,968	$	411

December 31, 2010
			Unpaid
(Dollars in Thousands)	Recorded		Principal		Related
	Investment		Balance		Allowance
With no related allowance recorded:
Real estate
Construction	$	1,326	$	1,294	$	-
Mortgage		4,016		4,196		-
Total real estate loans		5,342		5,490		-
Commercial		218		249		-
Consumer and other		62		61		-
		5,622		5,800		-
With an allowance recorded:
Real estate
Construction		1,836		1,879		296
Mortgage		105		103		25
Total real estate loans		1,941		1,982		321
Commercial		85		741		40
Consumer and other		55		53		12
		2,081		2,776		373

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			Unpaid
(Dollars in Thousands)	Recorded		Principal		Related
	Investment		Balance		Allowance
Total
Real estate
Construction	$	3,162	$	3,173	$	296
Mortgage		4,121		4,299		25
Total real estate loans		7,283		7,472		321
Commercial		303		990		40
Consumer and other		117		114		12
Total	$	7,703	$	8,576		373

The average recorded investment in impaired loans for the six months and year ended June 30, 2011 and December 31, 2010, was $7,787,247 and $8,512,074, respectively.

Nonaccrual loans were $4,403,484 and $4,805,658 at June 30, 2011 and December 31, 2010, respectively.

Interest income on impaired loans other than nonaccrual loans is recognized on an accrual basis. Interest income on nonaccrual loans is recognized only as collected.  During the six months ended June 30, 2011 and for the year ended December 31, 2010, interest income recognized on nonaccrual loans was $16,913 and $30,674, respectively.  If the nonaccrual loans had been accruing interest at their original contracted rates, related income would have been $147,828 and $275,415 for the six months ended June 30, 2011 and for the year ended December 31, 2010, respectively.

A summary of current, past due and nonaccrual loans as of June 30, 2011 and December 31, 2010 were as follows:

June 30, 2011
	Past Due		Past Due Over 90 days
(Dollars in Thousands)	30-89		And		Non-		Total				Total
	Days		Accruing		Accruing		Past Due		Current		Loans
Real estate
Construction	$	749	$	-	$	2,364	$	3,113	$	10,542	$	13,655
Mortgage		823		-		1,912		2,735		70,584		73,319
Total real estate loans		1,572		-		4,276		5,848		81,126		86,974
Commercial		166		-		68		234		8,059		8,293
Consumer and other		49		2		59		110		4,980		5,090
Totals	$	1,787	$	2	$	4,403	$	6,192	$	94,165	$	100,357

December 31, 2010
	Past Due		Past Due Over 90 days
(Dollars in Thousands)	30-89		and		Non-		Total				Total
	Days		Accruing		Accruing		Past Due		Current		Loans
Real estate
Construction	$	397	$	-	$	3,010	$	3,407	$	9,267	$	12,674
Mortgage		768		-		1,533		2,301		73,849		76,150
Total real estate loans		1,165		-		4,543		5,708		83,116		88,824
Commercial		99		-		203		302		11,300		11,602
Consumer and other		63		-		60		123		4,749		4,872
Totals	$	1,327	$	-	$	4,806	$	6,133	$	99,165	$	105,298

Loans are categorized into risk categories based on relevant information about the ability of borrowers to service their debt, such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The following definitions are utilized for risk ratings, which are consistent with the definitions used in supervisory guidance:

Special Mention - Loans classified as special mention have a potential weakness that deserves management's close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution's credit position at some future date.

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Substandard - Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

Doubtful - Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass rated loans.

As of June 30, 2011 and December 31, 2010, and based on the most recent analysis performed, the risk category of loans by class of loans is as follows:

June 30, 2011
			Real Estate Loans
							Total
							Real
(Dollars in Thousands)							Estate				Consumer
	Total		Construction		Mortgage		Loans		Commercial		and Other
Pass	$	93,652	$	12,458	$	72,261	$	84,719	$	3,950	$	4,983
Special mention		179		28		41		69		66		44
Substandard		6,526		1,169		1,017		2,186		4,277		63
Doubtful		-		-		-		-		-		-
Total	$	100,357	$	13,655	$	73,319	$	86,974	$	8,293	$	5,090

December 31, 2010
			Real Estate Loans
							Total
							Real
(Dollars in Thousands)							Estate				Consumer
	Total		Construction		Mortgage		Loans		Commercial		and Other
Pass	$	98,620	$	8,847	$	76,150	$	84,997	$	9,793	$	3,830
Special mention		1,378		681		-		681		551		146
Substandard		5,300		3,146		-		3,146		1,258		896
Doubtful		-		-		-		-		-
Total	$	105,298	$	12,674	$	76,150	$	88,824	$	11,602	$	4,872

The Company enters into financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers.  These financial instruments consist of commitments to extend credit and standby letters of credit.  Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract.  Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. A commitment involves, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the balance sheet.  The Company’s exposure to credit loss in the event of nonperformance by the other parties to the instrument is represented by the contractual notional amount of the instrument. Since certain commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements.  The Company uses the same credit policies in making commitments to extend credit as it does for on-balance-sheet instruments.  Letters of credit are conditional commitments issued to guarantee a customer’s performance to a third party and have essentially the same credit risk as other lending facilities.

Collateral held for commitments to extend credit and standby letters of credit varies but may include accounts receivable, inventory, property, plant, equipment, and income-producing commercial properties.

The following table summarizes the Company’s off-balance sheet financial instruments as of June 30, 2011 and December 31, 2010 whose contract amounts represent credit risk:

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	June 30,		December 31,
	2011		2010
Commitments to extend credit	$	5,463,000	$	5,855,857
Standby letters of credit		847,000		850,000

NOTE 7 – OTHER REAL ESTATE OWNED

Transactions in other real estate owned for the six months ended June 30, 2011 and year ended December 31, 2010 are summarized below:

	June 30,			December 31,
	2011			2010
Balance, beginning of year	$	2,764,189		$	340,000
Additions		537,989			2,491,189
Sales		(316,650	)		(67,000	)
Balance, end of period	$	2,985,528		$	2,764,189

The Company recognized a net loss of $21,432 on the sale of other real estate owned for the six months ended June 30, 2011.  The Company did not recognize a gain or loss on other real estate owned for the six months ended June 30, 2010.  For the year ended December 31, 2010 the Company recognized a net loss of $17,000 on the sale of other real estate owned.

Other real estate owned expense for the three and six months ended June 30, 2011 was $15,420 and $113,622, respectively, which includes gains and losses on sales.  The Company did not incur expenses attributable to other real estate owned for the three and six months ended June 30, 2010.

NOTE 8 - FAIR VALUE MEASUREMENTS

The following methods and assumptions were used to estimate the fair value of significant financial instruments:

Cash and Due from Banks and Interest-bearing Deposits with Other Banks- The carrying amount is a reasonable estimate of fair value.

Federal Funds sold - The carrying amount is a reasonable estimate of fair value because these instruments typically have terms of one to seven days.

Time Deposits in other Banks- The carrying amount is a reasonable estimate of fair value.

Securities Available-for-Sale - The fair values of securities available-for-sale equal the carrying amounts, which are the quoted market prices.  If quoted market prices are not available, fair values are based on quoted market prices of comparable securities.

Securities Held to Maturity – securities for which the Company has the positive intent and ability to hold to maturity are reported at cost, adjusted for premiums and discounts that are recognized in interest income using the interest method over the period to maturity or to call dates.  The fair values of securities held-to-maturity are based on quoted market prices.  If quoted market prices are not available, fair values are based on quoted market prices of comparable securities.

Nonmarketable Equity Securities - The carrying amount of nonmarketable equity securities is a reasonable estimate of fair value since no ready market exists for these securities.

Loans Receivable – For certain categories of loans, such as variable rate loans which are repriced frequently and have no significant change in credit risk, fair values are based on the carrying amounts.  The fair value of other types of loans is estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities.

Deposits- The fair value of demand deposits, savings, and money market accounts is the amount payable on demand at the reporting date.  The fair values of certificates of deposit are estimated using a discounted cash flow calculation that applies current interest rates to a schedule of aggregated expected maturities.

Accrued Interest Receivable and Payable- The carrying value of these instruments is a reasonable estimate of fair value.

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Off-Balance Sheet Financial Instruments- Fair values of off-balance sheet lending commitments are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counterparties’ credit standing.

The carrying values and estimated fair values of the Company’s financial instruments were as follows:

	June 30, 2011				December 31, 2010
	Carrying		Estimated Fair		Carrying		Estimated Fair
	Amount		Value		Amount		Value
Financial Assets:
Cash and due from banks	$	16,649,155	$	16,649,155	$	14,173,800	$	14,173,800
Federal funds sold		1,775,000		1,775,000		2,004,000		2,004,000
Time deposits with other banks		750,000		750,000		1,000,000		1,000,000
Securities available-for-sale		31,273,755		31,273,755		26,955,350		26,955,350
Securities held-to-maturity		299,903		309,287		299,885		309,023
Nonmarketable equity securities		292,200		292,200		302,300		302,300
Loans receivable, gross		100,357,304		100,378,711		105,297,684		105,748,184
Accrued interest receivable		799,733		799,733		785,859		785,859
Financial Liabilities:
Demand deposit, interest-bearing transactions, money market, and savings accounts	$	54,709,174	$	54,709,174	$	53,941,792	$	53,941,792
Time deposits		83,482,023		83,874,773		83,642,029		84,001,754
Accrued interest payable		354,301		354,301		451,331		451,331
	Notional				Notional
Off-Balance Sheet Financial Instruments:	Amount				Amount
Commitments	$	5,463,000			$	5,855,857
Standby letters of credit		847,000				850,000

Generally accepted accounting principles (GAAP) provide a framework for measuring and disclosing fair value which requires disclosures about the fair value of assets and liabilities recognized in the balance sheet, whether the measurements are made on a recurring basis (for example, available-for-sale investment securities) or on a nonrecurring basis (for example, impaired loans).

Fair value is defined as the exchange in price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. GAAP also establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

The Company utilizes fair value measurements to record fair value adjustments to certain assets and to determine fair value disclosures. Securities available-for-sale are recorded at fair value on a recurring basis. Additionally, from time to time, the Company may be required to record at fair value other assets on a nonrecurring basis, such as loans held for sale, loans held for investment and certain other assets. These nonrecurring fair value adjustments typically involve application of lower of cost or market accounting or write-downs of individual assets.

Fair Value Hierarchy

The Company groups assets and liabilities at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine the fair value. These levels are:

Level 1 - Valuation is based upon quoted prices for identical instruments traded in active markets.

Level 2 - Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market.

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Level 3 - Valuation is generated from model-based techniques that use at least one significant assumption not observable in the market. These unobservable assumptions reflect estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques include the use of option pricing models, discounted cash flow models and similar techniques.

Following is a description of valuation methodologies used for assets and liabilities recorded at fair value.

Securities Available for Sale - Securities available for sale are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted prices, if available. If quoted prices are not available, fair values are measured using independent pricing models or other model-based valuation techniques such as the present value of future cash flows, adjusted for the security’s credit rating, prepayment assumptions and other factors such as credit loss assumptions. Level 1 securities include those traded on an active exchange such as the New York Stock Exchange, Treasury securities that are traded by dealers or brokers in active over-the counter markets and money market funds. Level 2 securities include mortgage backed securities issued by government sponsored entities, municipal bonds and corporate debt securities. Securities classified as Level 3 include asset-backed securities in less liquid markets.

Loans - The Company does not record loans at fair value on a recurring basis, however, from time to time, a loan is considered impaired and an allowance for loan loss is established.  Loans for which it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan are considered impaired. Once a loan is identified as individually impaired, management measures the impairment. The fair value of impaired loans is estimated using one of several methods, including the collateral value, market value of similar debt, enterprise value, liquidation value and discounted cash flows. Those impaired loans not requiring a specific allowance represent loans for which the fair value of expected repayments or collateral exceed the recorded investment in such loans. At June 30, 2011 and December 31, 2010, substantially all of the impaired loans were evaluated based upon the fair value of the collateral. Impaired loans where an allowance is established based on the fair value of collateral require classification in the fair value hierarchy. When the fair value of the collateral is based on an observable market price or a current appraised value, the Company records the loan as nonrecurring Level 2. When an appraised value is not available or management determines the fair value of the collateral is further impaired below the appraised value and there is no observable market price, the Company records the loan as nonrecurring Level 3.

Other Real Estate Owned - Foreclosed assets are adjusted to fair value upon transfer of the loans to other real estate owned. Real estate acquired in settlement of loans is recorded initially at estimated fair value of the property less estimated selling costs at the date of foreclosure. The initial recorded value may be subsequently reduced by additional allowances, which are charges to earnings if the estimated fair value of the property less estimated selling costs declines below the initial recorded value. Fair value is based upon independent market prices, appraised values of the collateral or management’s estimation of the value of the collateral. When the fair value of the collateral is based on an observable market price or a current appraised value, the Company records the foreclosed asset as nonrecurring Level 2. When an appraised value is not available or management determines the fair value of the collateral is further impaired below the appraised value and there is no observable market price, the Company records the foreclosed asset as nonrecurring Level 3.

The table below presents the balances of assets and liabilities measured at fair value on a recurring basis by level within the hierarchy.

Available-for-Sale Securities:

	Total		Level 1		Level 2		Level 3
June 30, 2011
Government-sponsored enterprises	$	17,025,162	$	-	$	17,025,162	$	-
Mortgage-backed securities		3,048,768		-		3,048,768		-
Obligations of state and local governments		10,999,825		-		10,999,825		-
Other		200,000		-		200,000		-
Total	$	31,273,755	$	-	$	31,273,755	$	-
December 31, 2010
Government-sponsored enterprises	$	13,591,442	$	-	$	13,591,442	$	-
Mortgage-backed securities		1,851,266		-		1,851,266		-
Obligations of state and local governments		11,312,642		-		11,312,642		-
Other		200,000		-		200,000		-
Total	$	26,955,350	$	-	$	26,955,350	$	-

There were no liabilities measured at fair value on a recurring basis at June 30, 2011 and December 31, 2010.

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Certain assets and liabilities are measured at fair value on a nonrecurring basis; that is, the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment).  The following table presents the assets and liabilities measured at fair value on a nonrecurring basis as of June 30, 2011 and December 31, 2010, aggregated by level in the fair value hierarchy within which those measurements fall.

	Total		Level 1		Level 2		Level 3
June 30, 2011
Impaired loans	$	7,927,836	$	-	$	7,927,836	$	-
Other real estate owned		2,985,528		-		2,985,528		-
Total assets at fair value	$	10,913,364	$	-	$	10,913,364	$	-
December 31, 2010
Impaired loans	$	7,329,757	$	-	$	7,329,757	$	-
Other real estate owned		2,764,189		-		2,764,189		-
Total assets at fair value	$	10,093,946	$	-	$	10,093,946	$	-

There were no liabilities measured at fair value on a nonrecurring basis at June 30, 2011 and December 31, 2010.

Impaired loans which are measured for impairment using the fair value of collateral for collateral dependent loans, had a carrying value of $8,337,899 at June 30, 2011 with a valuation allowance of $410,063.  Impaired loans had a carrying value of $7,703,241 at December 31, 2010 with a valuation allowance of $373,484.

Other real estate owned, which is measured at the lower of carrying or fair value less costs to sell, had a net carrying value of $2,985,528 and $2,764,189 at June 30, 2011 and December 31, 2010, respectively.  There were no write downs of other real estate owned for the six months ended June 30, 2011 or for the year ended December 31, 2010.

The Company has no assets or liabilities whose fair values are measured using level 3 inputs.

NOTE 9 - SUBSEQUENT EVENTS

Subsequent eventsare events or transactions that occur after the balance sheet date but before financial statements are issued. Recognized subsequent events are events or transactions that provide additional evidence about conditions that existed at the date of the balance sheet, including the estimates inherent in the process of preparing financial statements.  Unrecognized subsequent events are events that provide evidence about conditions that did not exist at the date of the balance sheet but arose after that date.  Management has reviewed events occurring through the date the financial statements were issued and no subsequent events occurred that require accrual or disclosure.

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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion reviews our results of operations and assesses our financial condition.  You should read the following discussion and analysis in conjunction with the accompanying consolidated financial statements.  The commentary should be read in conjunction with the discussion of forward-looking statements, the financial statements and the related notes and the other statistical information included in this report.

Cautionary Note Regarding Forward-Looking Statements

The statements contained in this report on Form 10-Q that are not historical facts are forward-looking statements subject to the safe harbor created by the Private Securities Litigation Reform Act of 1995.  We caution readers of this report that such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of us to be materially different from those expressed or implied by such forward-looking statements.

Although we believe that our expectations of future performance are based on reasonable assumptions within the bounds of our knowledge of our business and operations, there can be no assurance that actual results will not differ materially from our expectations.

These forward-looking statements involve risks and uncertainties and may not be realized due to a variety of factors, including, but not limited to the following:

• deterioration in the financial condition of borrowers resulting in significant increases in loan losses and provisions for those losses;

• changes in loan underwriting, credit review or loss reserve policies associated with economic conditions, examination conclusions, or regulatory developments;

• the failure of assumptions underlying the establishment of reserves for possible loan losses;

• changes in political and economic conditions, including the political and economic effects of the current economic downturn and other major developments, including the ongoing war on terrorism and political unrest in the Middle East;

• changes in financial market conditions, either internationally, nationally or locally in areas in which we operate, including, without limitation, reduced rates of business formation and growth, commercial and residential real estate development, and real estate prices;

• our ability to comply with any requirements imposed on us and our banking subsidiary by our respective regulators, and the potential negative consequences that may result;

• fluctuations in markets for equity, fixed-income, commercial paper and other securities, which could affect availability, market liquidity levels, and pricing;

• governmental monetary and fiscal policies, as well as legislative and regulatory changes;

• our participation or lack of participation in governmental programs implemented under the Emergency Economic Stabilization Act (the “EESA”) and the American Recovery and Reinvestment Act (the “ARRA”), including, without limitation, the CPP administered under the Troubled Asset Relief Program, and the Temporary Liquidity Guarantee Program (the “TLGP”) and the impact of such programs and related regulations on us and on international, national, and local economic and financial markets and conditions.

Forward-looking statements speak only as of the date on which they are made.  We undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made to reflect the occurrence of unanticipated events.

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Results of Operations

For the quarter ended June 30, 2011 we realized a net income of $193,574, or $0.83 per share compared to a net loss of $236,680, or $1.02 per share for the quarter ended June 30, 2010.  For the six months ended June 30, 2011 we realized a net income of $370,471, or $1.59 per share compared to a net loss of $31,575, or $0.14 per share for the six months ended June 30, 2010.  The improvement in our net income for both periods is primarily attributable to the reduction in the amount we had to provide for loan losses during the current periods.

Net Interest Income

The largest component of total income is net interest income, the difference between the income earned on assets and the interest accrued or paid on deposits and borrowings used to support such assets. The volume and mix of assets and liabilities and their sensitivity to interest rate movement determine changes in net interest income. Net interest margin is determined by dividing annualized net interest income by average earning assets. Net interest spread is derived from determining the weighted-average rate of interest paid on deposits and borrowings and subtracting them from the weighted-average yield on earning assets.

Net interest income for the quarter ended June 30, 2011, was $1,421,141, compared to $1,348,740 for the same period last year, an increase of $72,401, or 5.37%.  This increase is primarily attributable to the yield on our average earning assets declining 36 basis points while the cost of our interest-bearing liabilities declined by 48 basis points.  Net interest income for the six months ended June 30, 2011 was $2,789,248, compared to $2,806,378 for the same period last year, a decrease of $17,130, or 0.61%.  This slight decrease is due to our yield on our average earning assets, when comparing 2011 with 2010, declining 5 basis points more than cost of our average interest-bearing liabilities.

For the three months ended June 30, 2011, average-earning assets totaled $148,112,153 with an annualized average yield of 4.87%.  Average earning assets and annualized average yield were $146,323,589 and 5.23%, respectively, for the three months ended June 30, 2010.  For the six months ended June 30, 2011, average earning assets totaled $147,349,688 with an annualized average yield of 4.89%.  Average earning assets and annualized average yield were $146,747,142 and 5.46%, respectively for the same period of 2010.

For the three months ended June 30, 2011, average interest-bearing liabilities totaled $124,870,335 with an annualized average cost of 1.21%. Average interest-bearing liabilities and annualized average cost were $132,657,863 and 1.69%, respectively, for the three months ended June 30, 2010. For the six months ended June 30, 2011, average interest-bearing liabilities totaled $124,445,096 with an annualized average cost of 1.27%. Average interest-bearing liabilities and annualized average cost were $131,894,540 and 1.78%, respectively, for the six months ended June 30, 2010.

Our net interest margin and net interest spread were 3.85% and 3.66% for the quarter ended June 30, 2011 compared to 3.70% and 3.54%, respectively for the quarter ended June 30, 2010.  Our net interest margin and net interest spread were 3.82% and 3.62%, respectively for the six months ended June 30, 2011 compared to3.86% and 3.68%, respectively for the six months ended June 30, 2010.

Details of the components of earning assets and interest-bearing liabilities are discussed in the following paragraphs.

Because loans often provide a higher yield than other types of earning assets, one of our goals is to maintain our loan portfolio as the largest component of total earning assets. Loans comprised approximately 68.64% and 77.49% of average earning assets for the quarter ended June 30, 2011 and 2010, respectively, and 69.89% and 78.25%, for the six months ended June 30, 2011 and 2010, respectively.  Loan interest income was $1,574,644 and $1,685,719 for quarter ended June 30, 2011 and 2010, respectively.  Loan interest income for the six months ended June 30, 2011 totaled $3,138,627 compared to $3,521,176 for the same period of 2010.  The annualized average yield on loans was 6.21% and 5.96% for the quarter ended June 30, 2011 and 2010, respectively.  The annualized average yield on loans was 6.15% and 6.18% for the six months ended June 30, 2011 and 2010, respectively.  Average balances of loans decreased to $101,664,912 during the quarter ended June 30, 2011, a decrease of $11,723,810, or 10.34% from the average balance of $113,388,722 during the quarter ended June 30, 2010.  For the six months ended June 30, 2011, the average balances of loans decreased by $11,846,259, or 10.32% from the average balances of $114,831,290 for the six months ended June 30, 2010, to $102,985,031.  The increase in the annualized yield on loans for the second quarter of 2011 compared to the second quarter of 2010 is due mainly to the amount of interest charged off on loans that were placed in nonaccruing status during the second quarter of 2010.  Fixed rate loans averaged approximately 98% and 96% of our loan portfolio for the first six months of 2011 and 2010, respectively.

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Investment securities averaged $30,651,927, or 20.7% of average earning assets for the three months ended June 30, 2011, compared to $22,333,022, or 15.26%, of average earning assets, for the same period in 2010.  For the six months ended June 30, 2011, investment securities averaged $29,401,917, or 19.95% of average earning assets compared to $23,125,422, or 15.76%, of average earning assets, for the same period in 2010.  Interest earned on investment securities amounted to $212,624 for the three months ended June 30, 2011, compared to $199,274 for the same period of 2010.  For the six months ended June 30, 2011, interest earned on investment securities amounted to $410,532 compared to $413,857 for the same period last year.  Investment securities yielded 2.78% and 3.58% for the three months ended June 30, 2011 and 2010, respectively.  For the six months ended June 30, 2011 and 2010 the yield on investment securities was 2.82% and 3.61%, respectively.

The largest component of interest expense is interest on deposit accounts.  Interest expense for deposit accounts for the quarter ended June 30, 2011 and 2010 was $376,233 and $559,978 respectively.  Interest expense for deposit accounts for the six months ended June 30, 2011 and 2010 was $780,820 and $1,165,237, respectively.  The average balance of interest bearing deposits decreased to $124,870,335 during the quarter ended June 30, 2011 from $132,657,863 for the quarter ended June 30, 2010.  During the six months ended June 30, 2011 the average balances of interest bearing deposits decreased to $124,445,096 from $131,894,247 for the same period in 2010.  The annualized average cost of deposits was 1.21% for the quarter ended June 30, 2011 compared to 1.69% for the same period in 2010.  The annualized average cost of deposits was 1.27% for the six months ended June 30, 2011 compared to 1.78% for the same period in 2010.

For the three and six months ended June 30, 2011 and 2010, interest expense on other interest-bearing liabilities was insignificant.

Provision and Allowance for Loan Losses

We have developed policies and procedures for evaluating the overall quality of our credit portfolio and the timely identification of potential problem credits.  On a quarterly basis, our Board of Directors reviews and approves the appropriate level for the allowance for loan losses based upon management’s recommendations, the results of our internal monitoring and reporting system, and an analysis of economic conditions in our market.  The objective of management has been to fund the allowance for loan losses at a level greater than or equal to our internal risk measurement system for loan risk.

Additions to the allowance for loan losses, which are expensed as the provision for loan losses on our statement of operations, are made periodically to maintain the allowance at an appropriate level based on management’s analysis of the potential risk in the loan portfolio.  Loan losses and recoveries are charged or credited directly to the allowance.  The amount of the provision is a function of the level of loans outstanding, the level of nonperforming loans, historical loan loss experience, the amount of loan losses actually charged against the reserve during a given period, and current and anticipated economic conditions.

The allowance represents an amount which management believes will be adequate to absorb inherent losses on existing loans that may become uncollectible.  Our judgment as to the adequacy of the allowance for loan losses is based on a number of assumptions about future events, which we believe to be reasonable, but which may or may not prove to be accurate. Our determination of the allowance for loan losses is based on regular evaluations of the collectability of loans, including consideration of factors such as the balance of impaired loans, the quality, mix, and size of our overall loan portfolio, economic conditions that may affect the borrower’s ability to repay, the amount and quality of collateral securing the loans, our historical loan loss experience, and a review of specific problem loans. We also consider subjective issues such as changes in our lending policies and procedures, changes in the local and national economy, changes in volume or type of credits, changes in the volume or severity of problem loans, quality of loan review and board of director oversight, concentrations of credit, and peer group comparisons.

More specifically, in determining our allowance for loan losses, we regularly review loans for specific and impaired reserves based on the appropriate impairment assessment methodology. Pooled reserves are determined using historical loss trends measured over a five-year average, adjusted for environmental risk, which is then applied to risk rated loans grouped by Federal Financial Examination Council (“FFIEC”) call code and segmented by impairment status. The pooled reserves are calculated by applying the appropriate historical loss ratio to the loan categories. Impaired loans greater than a minimum threshold established by management are excluded from this analysis. The sum of all such amounts determines our pooled reserves.

We track our portfolio and analyze loans grouped by FFIEC call code categories. The first step in this process is to risk grade each and every loan in the portfolio based on one common set of parameters. These parameters include items like debt-to-worth ratio, liquidity of the borrower, net worth, experience in a particular field and other factors such as underwriting exceptions. Weight is also given to the relative strength of any guarantors on the loan.

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After risk grading each loan, we then segment the portfolio by FFIEC call code groupings, separating out substandard or impaired loans.  The remaining loans are grouped into “performing loan pools.”  The loss history for each performing loan pool is measured over a specific period of time to create a loss factor.  The relevant look back period is determined by the Bank, regulatory guidance, and current market events.  The loss factor is then applied to the pool balance and the reserve per pool calculated.  Loans deemed to be substandard but not impaired are segregated and a loss factor is applied to this pool as well.  Finally, impaired loans are segmented based upon size; smaller impaired loans are pooled and a loss factor applied, while larger impaired loans are assessed individually using the appropriate impairment measuring methodology.  Finally, certain qualitative factors are utilized to assess economic and other trends not currently reflected in the loss history. These factors include concentration of credit across the portfolio, the experience level of management and staff, effects of changes in risk selection and underwriting practice, industry conditions and the current economic and business environment.  A quantitative value is assigned to each of the factors, which is then applied to the performing loan pools. Negative trends in the loan portfolio increase the quantitative values assigned to each of the qualitative factors and, therefore, increase the reserve.  For example, as general economic and business conditions decline, this qualitative factor’s quantitative value will increase, which will increase reserve requirement for this factor.  Similarly, positive trends in the loan portfolio, such as improvement in general economic and business conditions, will decrease the quantitative value assigned to this qualitative factor, thereby decreasing the reserve requirement for this factor.  These factors are reviewed and updated by our risk management committee on a regular basis to arrive at a consensus for our qualitative adjustments.

Periodically, we adjust the amount of the allowance based on changing circumstances. We recognize loan losses to the allowance and add subsequent recoveries back to the allowance for loan losses. In addition, on a quarterly basis we informally compare our allowance for loan losses to various peer institutions; however, we recognize that allowances will vary as financial institutions are unique in the make-up of their loan portfolios and customers, which necessarily creates different risk profiles for the institutions.  If our allowance was significantly different from our peer group, we would carefully review our assessment procedures again to ensure that all procedures were completed accurately and all environmental risk factors were thoroughly considered.  There can be no assurance that charge-offs of loans in future periods will not exceed the allowance for loan losses as estimated at any point in time or that provisions for loan losses will not be significant to a particular accounting period, especially considering the overall weakness in the economic environment in our market areas.

Various regulatory agencies review our allowance for loan losses through their periodic examinations, and they may require additions to the allowance for loan losses based on their judgment about information available to them at the time of their examinations. Our losses will undoubtedly vary from our estimates, and it is possible that charge-offs in future periods will exceed the allowance for loan losses as estimated at any point in time.

As of June 30, 2011 and 2010, the allowance for loan losses was $1,913,210 and $2,156,137, respectively, a decrease of $242,927, or 11.27%, from the 2010 allowance.  However, as a percentage of total loans, the allowance for loan losses was 1.91% and 1.93% at June 30, 2011 and 2010, respectively.  The decrease in the dollar amount of our allowance for loan losses was driven by the significant reduction of our loan portfolio, while we continue to charge off loan losses once they are identified.

For the three months ended June 30, 2011 and 2010, the provision for loan losses was $313,000 and $846,000, respectively.  The provision for loan losses was $538,000 and $1,211,000 for the six months ending June 30, 2011 and 2010, respectively.  The significant decline in the provision for both periods is largely attributable to the decline in our loan portfolio and our belief that the credit quality our loan portfolio is beginning to stabilize.  At June 30, 2011 and 2010, our loans totaled $100,357,304 and $111,873,551, respectively.

We believe the allowance for loan losses at June 30, 2011, is adequate to meet potential loan losses inherent in the loan portfolio, and, as described earlier, maintain the flexibility to adjust the allowance should our local economy and loan portfolio either improve or decline in the future.

Noninterest Income

Noninterest income for the three months ending June 30, 2011 was $134,202 compared to $140,244 for the three months ending June 30, 2010.  For the six months ending June 30, 2011 and 2010 noninterest income was $270,152 and $280,997, respectively.

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Noninterest Expense

Noninterest expense for the three months ended June 30, 2011 and 2010 was $982,469 and $976,915, respectively.  This represented an increase in noninterest expense of $5,554, or 0.57%. Salaries and employee benefits decreased $32,316 from $516,696 for the three months ended June 30, 2010 to $484,380 for the comparable period in 2011.  The net occupancy expense was $81,274, or $18,960 higher for the three months ended June 30, 2011 than for the same period in 2010.  Equipment expense increased $3,836 from $87,612 for the three months ended June 30, 2010 to $91,448 for the three months ended June 30, 2011.  For the three months ended June 30, 2011, other operating expenses were $325,367, or $15,074, higher than the three months ended June 30, 2010.  This increase is mainly attributable to the increase in other real estate owned expenses, which increased $15,420.

Noninterest expense for the six months ended June 30, 2011 and 2010 was $2,051,129 and $1,930,200, respectively.  This represented an increase of $120,929 or 6.27%.  Salaries and employee benefits decreased $28,221, from $1,010,799 for the six months ended June 30, 2010 to $982,578 for the comparable period in 2011.  The net occupancy expense was $146,262, or $21,017 higher for the six months ended June 30, 2011 than for the same period in 2010.  Equipment expense increased $1,235 from $180,993 for the six months ended June 30, 2010 to $182,228 for the six months ended June 30, 2011. For the six months ended June 30, 2011, other operating expense was $740,061 or $126,898, higher than the six months ended June 30, 2010.  The increase in other operating expense is primarily attributable to the increase of $113,622 in other real estate owned expenses.

Income Taxes

The income tax provision for the three and six months ended June 30, 2011 reflects an income tax expense of $66,300 and $99,800, respectively compared to an income tax benefit of $97,250 and $22,250, respectively for the comparable 2010 periods.  The change in our tax provision from a tax benefit for the three and six months ended June 30, 2010, to a tax expense for the comparable 2011 periods is due primarily to our net income (loss) before income taxes and the relationship of our tax exempt income to net income (loss) before taxes.

Assets and Liabilities

During the first six months of 2011, total assets increased $1,218,865 or 0.78%, when compared to December 31, 2010.  The balance of the federal funds sold was $1,775,000 at June 30, 2011 and $2,004,000 at December 31, 2010, a decrease of $229,000 or 11.43%.  Total investment securities increased $4,308,323, or 15.63% from December 31, 2010 to $31,865,858 at June 30, 2011.  Gross loans decreased $4,940,380, or 4.69%, to $100,357,304at June 30, 2011.

For the six months ended June 30, 2011, total liabilities increased $510,556 or 0.37% and total deposits increased $607,376 or 0.44% from December 31, 2010.

For more analysis of the components of the changes in asset and liabilities, see the following discussion of major balance sheet categories and the Consolidated Statements of Cash Flows included in “Item 1. Financial Statements.”

We closely monitor and seek to maintain appropriate levels of interest earning-assets and interest-bearing liabilities so that maturities of assets are such that adequate funds are provided to meet customer withdrawals and loan demand.

Loans

At June 30, 2011, our total loans were $100,357,304 compared to $105,297,684 at December 31, 2010, a decrease of $4,940,380 or 4.69%.  At June 30, 2011 and December 31, 2010, approximately 98% and 99% of our loan portfolio consisted of fixed rate loans, respectively.  Balances within the major loans receivable categories as of June 30, 2011 and December 31, 2010 are as follows:

	June 30,		December 31,
	2011		2010
Real estate – construction	$	13,654,980	$	12,674,197
Real estate – mortgage		73,318,790		76,149,357
Commercial and industrial		8,293,690		11,602,305
Consumer and other		5,089,844		4,871,825
Total gross loans	$	100,357,304	$	105,297,684

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The loan portfolio consisted of loans having:

	June 30,		December 31,
	2011		2010
Variable rates	$	2,018,931	$	1,556,700
Fixed rates		98,338,373		103,740,984
Total gross loans	$	100,357,304	$	105,297,684

Risk Elements in the Loan Portfolio

The following table sets forth the Company’s nonperforming assets at the dates indicated:

	June 30,
	2011			2010
Loans impaired and included in nonaccrual loans	$	4,403,484		$	5,458,220
Loans impaired and not included in nonaccrual		3,934,415			3,175,003
Total impaired loans		8,337,899			8,633,223
Loans 90 days or more past due and still accruing interest		1,764			2,973
Total impaired and nonperforming loans		8,339,663			8,636,196
Other real estate owned		2,985,528			340,000
Total impaired and nonperforming assets	$	11,325,191		$	8,976,196
Nonperforming assets to total assets		7.21	%		7.72	%
Total impaired and nonperforming loans to total loans		8.31	%		5.55	%
Allowance for loan losses as a percentage of impaired and nonperforming loans		22.94	%		24.97	%

The following tables summarize information on impaired loans for the six months ended June 30, 2011 and 2010.

	Six Months Ended
	June 30,
	2011		2010
Impaired loans with specific allowance	$	6,218,616	$	1,067,605
Impaired loans with no specific allowance		2,119,283		7,565,618
Total impaired loans	$	8,337,899	$	8,633,223
Related specific allowance	$	410,063	$	278,658
Average recorded investment in impaired loans		7,787,247		8,707,205

At June 30, 2011 real estate or other collateral secured practically all of the loans that were considered impaired.  In the event of foreclosure on these loans, there can be no assurance that in liquidation, the collateral can be sold for its estimated fair market value or even for an amount at least equal to or greater than the loan amount.

The results our internal review process and applying the allowance model methodology are the primary determining factors in management’s assessment of the adequacy of the allowance for loan losses.

Activity in the Allowance for Loan Losses is as follows:

	Six Months Ended
	June 30,
	2011			2010
Balance, January 1,	$	2,019,497		$	2,053,340
Provision for loan losses for the period		538,000			1,211,000
Net loans charged-off for the period		(644,287	)		(1,108,203	)
Balance, end of period	$	1,913,210		$	2,156,137
Gross loans outstanding, end of period	$	100,357,304		$	111,873,551
Allowance for loan losses to loans outstanding		1.91	%		1.93	%

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Deposits

Deposits account for practically all of our interest bearing liabilities.  Total average deposits decreased from $146,584,533 for the first six months in 2010 to $138,762,438 for the first six months in 2011.  This represents a decrease of $7,821,995, or 5.34% from the 2010 amount.

The following table summarizes our average deposits for the six months ended June 30, 2011 and 2010.

	Six Months Ended June 30,
	2011					2010
			Percent of					Percent of
	Amount		Deposits			Amount		Deposits
Noninterest-bearing demand	$	14,317,342		10.32	%	$	14,690,286		10.02	%
Interest-bearing demand		21,016,069		15.15			22,483,914		15.34
Savings accounts		19,990,090		14.41			16,715,662		11.40
Time deposits		83,438,937		60.13			92,694,671		63.24
Total deposits	$	138,762,438		100.00	%	$	146,584,533		100.00	%

Our actual deposits at June 30, 2011 and December 31, 2010 were $138,191,197 and $137,583,821, respectively, representing an increase of $607,376, or 0.44%.

Core deposits, which exclude certificates of deposit of $100,000 or more, provide a relatively stable funding source for our loan portfolio and other earning assets.  Our core deposits were $91,726,131 and $91,441,668 at June 30, 2011 and December 31, 2010, respectively.  A stable base of deposits is expected to be our primary source of funding to meet both our short-term and long-term liquidity needs in the future.

Deposits, and particularly core deposits, have been our primary source of funding and have enabled us to meet successfully both our short-term and long-term liquidity needs.  We anticipate that such deposits will continue to be our primary source of funding in the future.  Our loan-to-deposit ratio was 72.62% and 76.53% on June 30, 2011 and December 31, 2010, respectively.

We did not have any brokered deposits at June 30, 2011 or December 31, 2010.

Liquidity

Liquidity needs are met by us through scheduled maturities of loans and investments on the asset side and through pricing policies on the liability side for demand deposit accounts and short-term borrowings.  The level of liquidity is measured by the loan-to-total funds ratio (total deposits plus short-term borrowings if any), which was 72.62% at June 30, 2011 and 76.53% at December 31, 2010.

Asset liquidity is provided from several sources, including amounts due from banks and federal funds sold. Available-for-sale securities, particularly those maturing within one year, provide a secondary source of liquidity.  Additionally, funds from maturing loans are a source of liquidity.

At June 30, 2011 the Bank had available an unused short-term line of credit to purchase up to $10,000,000 of federal funds from unrelated correspondent institutions.  The Bank also has a credit availability agreement with the Federal Home Loan Bank totaling 15 percent of the Bank’s assets as of any quarter end.  As of June 30, 2011, the available credit totaled approximately $23,560,000 and there were no borrowings outstanding.  Any borrowings from the Federal Home Loan Bank will be secured by a blanket lien on all of the Bank’s 1-4 family residential first lien mortgage loans and or investment securities.

Interest Rate Sensitivity

Interest rate sensitivity is defined as the exposure to variability in net interest income resulting from changes in market-based interest rates. Asset/liability management is the process by which we monitor and control the mix, maturities, and interest sensitivity of our assets and liabilities. Asset/liability management seeks to ensure adequate liquidity and to maintain an appropriate balance between interest-sensitive assets and liabilities to minimize potentially adverse impacts on earnings from changes in market interest rates. Interest rate sensitivity can be managed by repricing assets or liabilities, selling securities available-for-sale, replacing an asset or liability at maturity, or adjusting the interest rate during the life of an asset or liability. We believe that interest rate risk management becomes increasingly important in an interest rate environment and economy such as the one that we are currently experiencing.

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We monitor interest rate sensitivity by measuring our interest sensitivity through a “gap” analysis, which is the positive or negative dollar difference between assets and liabilities that are subject to interest rate repricing within a given time period.  Currently we are liability-sensitive over periods with maturity dates of less than twelve months.  However, since interest rates and yields on various interest sensitive assets and liabilities do not all adjust in the same degree when there is a change in prevailing interest rates (such as prime rate), the traditional gap analysis is only a general indicator of rate sensitivity and net interest income volatility. As stated in “Results of Operations for the Six Months ended June 30, 2011 Compared to the Six Months Ended June 30, 2010 – Net Interest Income,” our net interest margin decreased during the current period. If the net interest margin were to continue decline, the net income will likely decline also.

Capital Resources

Total shareholders' equity at June 30, 2011 and December 31, 2010 was $18,347,145 or 11.68% and $17,638,837 or 11.32%, respectively, of total assets.

The following table shows the return on average assets (net income divided by average total assets), return on average equity (net income divided by average equity), and equity to assets ratio (average equity divided by average total assets) for the six months ended June 30, 2011 and 2010.

	Six Months Ended
	June 30,
	2011			2010
Return on average assets		4.18	%		(0.36	)%
Return on average equity		0.48			(0.04	)
Average equity to average assets ratio		11.36			10.75

Bank holding companies, such as ours, and their banking subsidiaries are required by banking regulators to meet certain minimum levels of capital adequacy, which are expressed in the form of certain ratios.  Capital is separated into Tier 1 capital (essentially common shareholders’ equity less intangible assets) and Tier 2 capital (essentially the allowance for loan losses limited to 1.25% of risk-weighted assets).  The first two ratios, which are based on the degree of credit risk in our assets, provide the weighting of assets based on assigned risk factors and include off-balance sheet items such as loan commitments and stand-by letters of credit.  The ratio of Tier 1 capital to risk-weighted assets must be at least 4.0% and the ratio of total capital (Tier 1 capital plus Tier 2 capital) to risk-weighted assets must be at least 8.0%.  The capital leverage ratio supplements the risk-based capital guidelines.  Banks and bank holding companies are required to maintain a minimum ratio of Tier 1 capital to adjusted quarterly average total assets of 3.0%.

The following table summarizes the Bank’s various capital ratios at June 30, 2011and December 31, 2010:

	June 30,			December 31,
	2011			2010
Tier 1 capital (to risk-weighted assets)		17.19	%		15.23	%
Total capital (to risk-weighted assets)		18.44	%		16.49	%
Tier 1 capital (leverage ratio)		11.34	%		11.15	%

The Federal Reserve Board has similar requirements for bank holding companies.  The Company is currently not subject to these requirements because the Federal Reserve guidelines contain an exemption for bank holding companies of less than $500,000,000 in consolidated assets.

Regulatory Matters

We are not aware of any current recommendations by regulatory authorities which, if they were to be implemented, would have a material effect on liquidity, capital resources or operations.

Off-Balance Sheet Risk

Through the operations of our Bank, we have made contractual commitments to extend credit in the ordinary course of our business activities.  These commitments are legally binding agreements to lend money to our customers at predetermined interest rates for a specified period of time.  At June 30, 2011, we had issued commitments to extend credit of $5,463,000 and standby letters of credit of $847,000 through various types of commercial lending arrangements.  We evaluate each customer’s creditworthiness on a case-by-case basis.  The amount of collateral obtained, if deemed necessary by us upon extension of credit, is based on our credit evaluation of the borrower.  Collateral varies but may include accounts receivable, inventory, property, plant and equipment, commercial and residential real estate.

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Critical Accounting Policies

We have adopted various accounting policies, which govern the application of accounting principles generally accepted in the United States in the preparation of our financial statements.  Our significant accounting policies are described in the notes to the consolidated financial statements at December 31, 2010 as filed in our annual report on Form 10-K.  Certain accounting policies involve significant judgments and assumptions by us, which have a material impact on the carrying value of certain assets and liabilities.  We consider these accounting policies to be critical accounting policies.  The judgments and assumptions we use are based on historical experience and other factors, which we believe to be reasonable under the circumstances.  Because of the nature of the judgments and assumptions we make, actual results could differ from these judgments and estimates which could have a material impact on our carrying values of assets and liabilities and our results of operations.

We believe the allowance for loan losses is a critical accounting policy that requires the most significant judgments and estimates used in preparation of our consolidated financial statements.  Refer to the portion of this discussion that addresses our allowance for loan losses for a description of our processes and methodology for determining our allowance for loan losses.

Recently Issued Accounting Standards

Accounting standards which have been issued or proposed by the Financial Accounting Standards Board that do not require adoption until a future date are not expected to have a material impact on the consolidated financial statements upon adoption.

Item 3.  Quantitative and Qualitative Disclosure About Market Risk

Not applicable since we are a smaller reporting company.

Item 4.  Controls and Procedures

Within 90 days prior to the date of this report, we carried out an evaluation, under the supervision and with the participation of our principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures.  Based on this evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures are effective in timely alerting them to material information required to be included in our periodic SEC reports.  The design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote.

In addition, we reviewed our internal controls, and there have been no significant changes in our internal controls or in other factors that could significantly affect those controls subsequent to the date of their last evaluation.

PART II – Other Information

Item 1.   Legal Proceedings

There are no material pending legal proceedings to which we are a party or of which any of our properties are the subject.

Item 1A.   Risk Factors

There has been no change in the risk factors, which were reported on Form 10-K for the year ended December 31, 2010.

Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds

Not applicable

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Item 3.   Default Upon Senior Securities

Not applicable

Item 4.   Removed and Reserved

Not applicable

Item 5.   Other Information

Not applicable

Item 6.   Exhibits

31.1	Rule 13a-14(a) Certification of the Principal Executive Officer.
31.2	Rule 13a-14(a) Certification of the Principal Financial Officer.
32	Section 1350 Certifications.
101	Interactive Data File.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

COMMUNITYCORP

Date:	August 12, 2011	By:	/s/ W. ROGER CROOK
			W. Roger Crook
			President & Chief Executive Officer
Date:	August 12, 2011	By:	/s/ GWEN P. BUNTON
			Gwen P. Bunton
			Chief Financial Officer

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EX-31.1

Exhibit 31.1

CERTIFICATION

I, W. Roger Crook, president and chief executive officer, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Communitycorp;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted account principles;

(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date:  August 12, 2011	By:	/s/ W. Roger Crook
		W. Roger Crook
		President and Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION

I, Gwendolyn P. Bunton, Vice President and Cashier, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Communitycorp;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted account principles;

(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date:  August 12, 2011	By:	/s/ Gwendolyn P. Bunton
		Gwendolyn P. Bunton
		Vice President and Cashier

EX-32

Exhibit 32

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

The undersigned, the Chief Executive Officer and the Vice President and Cashier of Communitycorp (the “Company”), each certify that, to his or her knowledge on the date of this certification:

1. The quarterly report of the Company for the period ended June 30, 2011 as filed with the Securities and Exchange Commission on this date (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

Date:  August 12, 2011	By:	/s/ W. Roger Crook
		W. Roger Crook
		President and Chief Executive Officer

Date:  August 12, 2011	By:	/s/ Gwendolyn P. Bunton
		Gwendolyn P. Bunton
		Vice President and Cashier

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Condensed Consolidated Balance Sheets (Parenthetical) (USD $)	Jun. 30, 2011	Dec. 31, 2010
Securities held-to-maturity, fair value	$ 309,287	$ 309,023
Preferred stock, par value	$ 5	$ 5
Preferred stock, shares authorized	3,000,000	3,000,000
Preferred stock, shares issued	0	0
Common stock, par value	$ 5	$ 5
Common stock, shares authorized	3,000,000	3,000,000
Common stock, shares issued	300,000	300,000
Treasury Stock, shares	66,997	66,997

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Condensed Consolidated Statements of Operations (USD $)	3 Months Ended		6 Months Ended
	Jun. 30, 2011	Jun. 30, 2010	Jun. 30, 2011	Jun. 30, 2010
Interest income:
Loans, including fees	$ 1,574,644	$ 1,685,719	$ 3,138,627	$ 3,521,176
Securities	212,624	199,274	410,532	413,857
Other interest income	10,106	23,725	20,909	36,583
Total	1,797,374	1,908,718	3,570,068	3,971,616
Interest expense:
Deposit accounts	376,233	559,978	780,820	1,165,237
Other interest expense				1
Total	376,233	559,978	780,820	1,165,238
Net interest income	1,421,141	1,348,740	2,789,248	2,806,378
Provision for loan losses	313,000	846,000	538,000	1,211,000
Net interest income after provision for loan losses	1,108,141	502,740	2,251,248	1,595,378
Noninterest income:
Service charges	102,076	111,161	205,720	210,473
Other income	32,126	29,083	64,432	70,524
Total	134,202	140,244	270,152	280,997
Noninterest expenses:
Salaries and benefits	484,380	516,696	982,578	1,010,799
Net occupancy expense	81,274	62,314	146,262	125,245
Equipment expense	91,448	87,612	182,228	180,993
Other operating expenses	325,367	310,292	740,061	613,163
Total	982,469	976,914	2,051,129	1,930,200
Income (loss) before taxes	259,874	(333,930)	470,271	(53,825)
Income tax provision	66,300	(97,250)	99,800	(22,250)
Net income (loss)	$ 193,574	$ (236,680)	$ 370,471	$ (31,575)
Earnings (loss) per share:
Weighted average common shares outstanding	233,003	233,033	233,003	233,504
Net income (loss) per common share	$ 0.83	$ (1.02)	$ 1.59	$ (0.14)

XML



Document and Entity Information	6 Months Ended
	Jun. 30, 2011	Jul. 31, 2011
Document Information [Line Items]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Jun. 30, 2011
Document Fiscal Year Focus	2011
Document Fiscal Period Focus	Q2
Entity Registrant Name	COMMUNITYCORP
Entity Central Index Key	0001020347
Current Fiscal Year End Date	--12-31
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		233,003

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INVESTMENT SECURITIES

6 Months Ended

Jun. 30, 2011

INVESTMENT SECURITIES

NOTE 5 - INVESTMENT SECURITIES

Securities Available-for-Sale

The amortized cost and estimated fair values of securities available-for-sale at June 30, 2011 and December 31, 2010 were:

	Amortized		Gross Unrealized				Estimated
	Cost		Gains		Losses		Fair Value
June 30, 2011
U.S. Government agencies	$	16,991,360	$	50,450	$	16,648	$	17,025,162
Mortgage-backed securities		2,981,397		67,448		77		3,048,768
Municipals		10,506,211		505,542		11,928		10,999,825
Other		200,000		-		-		200,000
Total	$	30,678,968	$	623,440	$	28,653	$	31,273,755

	Amortized		Gross Unrealized				Estimated
	Cost		Gains		Losses		Fair Value
December 31, 2010
Government-sponsored enterprises	$	13,891,989	$	11,473	$	312,020	$	13,591,442
Mortgage-backed securities		1,842,249		24,286		15,269		1,851,266
Obligations of state and local governments		11,119,970		247,905		55,233		11,312,642
Other		200,000		-		-		200,000
Total	$	27,054,208	$	283,664	$	382,522	$	26,955,350

The following is a summary of maturities of securities available-for-sale as of June 30, 2011.  The amortized cost and estimated fair values are based on the contractual maturity dates.  Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without penalty.

	Securities
	Available-For-Sale
	Amortized		Estimated
	Cost		Fair Value
Due in one year or less	$	-		-
Due after one year but within five years		1,831,797		1,883,346
Due after five years but within ten years		18,120,927		18,515,613
Due after ten years		7,744,847		7,826,028
		27,697,571		28,224,987
Mortgage-backed securities		2,981,397		3,048,768
Total	$	30,678,968	$	31,273,755

The following table shows gross unrealized losses and fair value, aggregated by investment category, and length of time that individual securities have been in a continuous unrealized loss position, at June 30, 2011 and December 31, 2010.

	June 30, 2011				December 31, 2010
	Fair		Unrealized		Fair		Unrealized
	Value		Losses		Value		Losses
Less Than 12 Months
Government-sponsored enterprises	$	3,479,060	$	16,648	$	12,379,970	$	312,020
Mortgaged-backed Securities		63,216		77		964,073		15,269
Obligations of state and local governments		-		-		2,151,511		55,233
		3,542,276		16,725		15,495,554		382,522
12 Months or More
Obligations of state and local governments		240,000		11,928		-		-
		240,000		11,928		-		-
Total	$	3,782,276	$	28,653	$	15,495,554	$	382,522

A total of ten available-for-sale securities were in a loss position at June 30, 2011, including one security that had been in a continuous loss position for twelve months or more.  The Company believes, based on industry analyst reports and credit ratings, that the deterioration in value is attributable to changes in market interest rates and not in credit quality and considers these losses temporary.  The Company does not intend to sell these securities and it is more likely than not that the Company will not be required to sell these securities before recovery of their amortized costs.  Management evaluates investment securities in a loss position based on length of impairment, severity of impairment and other factors.

Securities Held-to-Maturity

The amortized cost and estimated fair values of securities held-to-maturity at June 30, 2011 and December 31, 2010 were:

	Amortized		Gross Unrealized				Estimated
	Cost		Gains		Losses		Fair Value
June 30, 2011
Obligations of state and local governments	$	299,903	$	9,384	$	-	$	309,287
December 31, 2010
Obligations of state and local governments	$	299,885	$	9,138	$	-	$	309,023

The following is a summary of maturities of securities held-to-maturity as of June 30, 2011.  The amortized cost and estimated fair values are based on the contractual maturity dates.  Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without penalty.

	Securities
	Held-to-Maturity
	Amortized		Estimated
	Cost		Fair Value
Due after one year but within five years	$	99,903	$	100,651
Due after five years but within ten years		200,000		208,636
Total	$	299,903	$	309,287

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BASIS OF PRESENTATION

6 Months Ended

Jun. 30, 2011

BASIS OF PRESENTATION

NOTE 1 - BASIS OF PRESENTATION

The accompanying consolidated financial statements have been prepared in accordance with the requirements for interim financial statements and, accordingly, they are condensed and omit disclosures, which would substantially duplicate those contained in the most recent annual report to shareholders.  The financial statements as of June 30, 2011 and for the interim periods ended June 30, 2011 and 2010 are unaudited and, in our opinion, include all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation.  The results of operations for the six months ended June 30, 2011 are not necessarily indicative of the results which may be expected for the entire calendar year.  The financial information as of December 31, 2010 has been derived from the audited financial statements as of that date.  For further information, refer to the financial statements and the notes included in Communitycorp’s 2010 Annual Report.

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OTHER REAL ESTATE OWNED

6 Months Ended

Jun. 30, 2011

OTHER REAL ESTATE OWNED

NOTE 7 – OTHER REAL ESTATE OWNED

Transactions in other real estate owned for the six months ended June 30, 2011 and year ended December 31, 2010 are summarized below:

	June 30,			December 31,
	2011			2010
Balance, beginning of year	$	2,764,189		$	340,000
Additions		537,989			2,491,189
Sales		(316,650	)		(67,000	)
Balance, end of period	$	2,985,528		$	2,764,189

The Company recognized a net loss of $21,432 on the sale of other real estate owned for the six months ended June 30, 2011.  The Company did not recognize a gain or loss on other real estate owned for the six months ended June 30, 2010.  For the year ended December 31, 2010 the Company recognized a net loss of $17,000 on the sale of other real estate owned.

Other real estate owned expense for the three and six months ended June 30, 2011 was $15,420 and $113,622, respectively, which includes gains and losses on sales.  The Company did not incur expenses attributable to other real estate owned for the three and six months ended June 30, 2010.

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FAIR VALUE MEASUREMENTS

6 Months Ended

Jun. 30, 2011

FAIR VALUE MEASUREMENTS

NOTE 8 - FAIR VALUE MEASUREMENTS

The following methods and assumptions were used to estimate the fair value of significant financial instruments:

Cash and Due from Banks and Interest-bearing Deposits with Other Banks- The carrying amount is a reasonable estimate of fair value.

Federal Funds sold - The carrying amount is a reasonable estimate of fair value because these instruments typically have terms of one to seven days.

Time Deposits in other Banks- The carrying amount is a reasonable estimate of fair value.

Securities Available-for-Sale - The fair values of securities available-for-sale equal the carrying amounts, which are the quoted market prices.  If quoted market prices are not available, fair values are based on quoted market prices of comparable securities.

Securities Held to Maturity – securities for which the Company has the positive intent and ability to hold to maturity are reported at cost, adjusted for premiums and discounts that are recognized in interest income using the interest method over the period to maturity or to call dates.  The fair values of securities held-to-maturity are based on quoted market prices.  If quoted market prices are not available, fair values are based on quoted market prices of comparable securities.

Nonmarketable Equity Securities - The carrying amount of nonmarketable equity securities is a reasonable estimate of fair value since no ready market exists for these securities.

Loans Receivable – For certain categories of loans, such as variable rate loans which are repriced frequently and have no significant change in credit risk, fair values are based on the carrying amounts.  The fair value of other types of loans is estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities.

Deposits- The fair value of demand deposits, savings, and money market accounts is the amount payable on demand at the reporting date.  The fair values of certificates of deposit are estimated using a discounted cash flow calculation that applies current interest rates to a schedule of aggregated expected maturities.

Accrued Interest Receivable and Payable- The carrying value of these instruments is a reasonable estimate of fair value.

Off-Balance Sheet Financial Instruments- Fair values of off-balance sheet lending commitments are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counterparties’ credit standing.

The carrying values and estimated fair values of the Company’s financial instruments were as follows:

	June 30, 2011				December 31, 2010
	Carrying		Estimated Fair		Carrying		Estimated Fair
	Amount		Value		Amount		Value
Financial Assets:
Cash and due from banks	$	16,649,155	$	16,649,155	$	14,173,800	$	14,173,800
Federal funds sold		1,775,000		1,775,000		2,004,000		2,004,000
Time deposits with other banks		750,000		750,000		1,000,000		1,000,000
Securities available-for-sale		31,273,755		31,273,755		26,955,350		26,955,350
Securities held-to-maturity		299,903		309,287		299,885		309,023
Nonmarketable equity securities		292,200		292,200		302,300		302,300
Loans receivable, gross		100,357,304		100,378,711		105,297,684		105,748,184
Accrued interest receivable		799,733		799,733		785,859		785,859
Financial Liabilities:
Demand deposit, interest-bearing transactions, money market, and savings accounts	$	54,709,174	$	54,709,174	$	53,941,792	$	53,941,792
Time deposits		83,482,023		83,874,773		83,642,029		84,001,754
Accrued interest payable		354,301		354,301		451,331		451,331
	Notional				Notional
Off-Balance Sheet Financial Instruments:	Amount				Amount
Commitments	$	5,463,000			$	5,855,857
Standby letters of credit		847,000				850,000

Generally accepted accounting principles (GAAP) provide a framework for measuring and disclosing fair value which requires disclosures about the fair value of assets and liabilities recognized in the balance sheet, whether the measurements are made on a recurring basis (for example, available-for-sale investment securities) or on a nonrecurring basis (for example, impaired loans).

Fair value is defined as the exchange in price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. GAAP also establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

The Company utilizes fair value measurements to record fair value adjustments to certain assets and to determine fair value disclosures. Securities available-for-sale are recorded at fair value on a recurring basis. Additionally, from time to time, the Company may be required to record at fair value other assets on a nonrecurring basis, such as loans held for sale, loans held for investment and certain other assets. These nonrecurring fair value adjustments typically involve application of lower of cost or market accounting or write-downs of individual assets.

Fair Value Hierarchy

The Company groups assets and liabilities at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine the fair value. These levels are:

Level 1 - Valuation is based upon quoted prices for identical instruments traded in active markets.

Level 2 - Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market.

Level 3 - Valuation is generated from model-based techniques that use at least one significant assumption not observable in the market. These unobservable assumptions reflect estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques include the use of option pricing models, discounted cash flow models and similar techniques.

Following is a description of valuation methodologies used for assets and liabilities recorded at fair value.

Securities Available for Sale - Securities available for sale are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted prices, if available. If quoted prices are not available, fair values are measured using independent pricing models or other model-based valuation techniques such as the present value of future cash flows, adjusted for the security’s credit rating, prepayment assumptions and other factors such as credit loss assumptions. Level 1 securities include those traded on an active exchange such as the New York Stock Exchange, Treasury securities that are traded by dealers or brokers in active over-the counter markets and money market funds. Level 2 securities include mortgage backed securities issued by government sponsored entities, municipal bonds and corporate debt securities. Securities classified as Level 3 include asset-backed securities in less liquid markets.

Loans - The Company does not record loans at fair value on a recurring basis, however, from time to time, a loan is considered impaired and an allowance for loan loss is established.  Loans for which it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan are considered impaired. Once a loan is identified as individually impaired, management measures the impairment. The fair value of impaired loans is estimated using one of several methods, including the collateral value, market value of similar debt, enterprise value, liquidation value and discounted cash flows. Those impaired loans not requiring a specific allowance represent loans for which the fair value of expected repayments or collateral exceed the recorded investment in such loans. At June 30, 2011 and December 31, 2010, substantially all of the impaired loans were evaluated based upon the fair value of the collateral. Impaired loans where an allowance is established based on the fair value of collateral require classification in the fair value hierarchy. When the fair value of the collateral is based on an observable market price or a current appraised value, the Company records the loan as nonrecurring Level 2. When an appraised value is not available or management determines the fair value of the collateral is further impaired below the appraised value and there is no observable market price, the Company records the loan as nonrecurring Level 3.

Other Real Estate Owned - Foreclosed assets are adjusted to fair value upon transfer of the loans to other real estate owned. Real estate acquired in settlement of loans is recorded initially at estimated fair value of the property less estimated selling costs at the date of foreclosure. The initial recorded value may be subsequently reduced by additional allowances, which are charges to earnings if the estimated fair value of the property less estimated selling costs declines below the initial recorded value. Fair value is based upon independent market prices, appraised values of the collateral or management’s estimation of the value of the collateral. When the fair value of the collateral is based on an observable market price or a current appraised value, the Company records the foreclosed asset as nonrecurring Level 2. When an appraised value is not available or management determines the fair value of the collateral is further impaired below the appraised value and there is no observable market price, the Company records the foreclosed asset as nonrecurring Level 3.

The table below presents the balances of assets and liabilities measured at fair value on a recurring basis by level within the hierarchy.

Available-for-Sale Securities:

	Total		Level 1		Level 2		Level 3
June 30, 2011
Government-sponsored enterprises	$	17,025,162	$	-	$	17,025,162	$	-
Mortgage-backed securities		3,048,768		-		3,048,768		-
Obligations of state and local governments		10,999,825		-		10,999,825		-
Other		200,000		-		200,000		-
Total	$	31,273,755	$	-	$	31,273,755	$	-
December 31, 2010
Government-sponsored enterprises	$	13,591,442	$	-	$	13,591,442	$	-
Mortgage-backed securities		1,851,266		-		1,851,266		-
Obligations of state and local governments		11,312,642		-		11,312,642		-
Other		200,000		-		200,000		-
Total	$	26,955,350	$	-	$	26,955,350	$	-

There were no liabilities measured at fair value on a recurring basis at June 30, 2011 and December 31, 2010.

Certain assets and liabilities are measured at fair value on a nonrecurring basis; that is, the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment).  The following table presents the assets and liabilities measured at fair value on a nonrecurring basis as of June 30, 2011 and December 31, 2010, aggregated by level in the fair value hierarchy within which those measurements fall.

	Total		Level 1		Level 2		Level 3
June 30, 2011
Impaired loans	$	7,927,836	$	-	$	7,927,836	$	-
Other real estate owned		2,985,528		-		2,985,528		-
Total assets at fair value	$	10,913,364	$	-	$	10,913,364	$	-
December 31, 2010
Impaired loans	$	7,329,757	$	-	$	7,329,757	$	-
Other real estate owned		2,764,189		-		2,764,189		-
Total assets at fair value	$	10,093,946	$	-	$	10,093,946	$	-

There were no liabilities measured at fair value on a nonrecurring basis at June 30, 2011 and December 31, 2010.

Impaired loans which are measured for impairment using the fair value of collateral for collateral dependent loans, had a carrying value of $8,337,899 at June 30, 2011 with a valuation allowance of $410,063.  Impaired loans had a carrying value of $7,703,241 at December 31, 2010 with a valuation allowance of $373,484.

Other real estate owned, which is measured at the lower of carrying or fair value less costs to sell, had a net carrying value of $2,985,528 and $2,764,189 at June 30, 2011 and December 31, 2010, respectively.  There were no write downs of other real estate owned for the six months ended June 30, 2011 or for the year ended December 31, 2010.

The Company has no assets or liabilities whose fair values are measured using level 3 inputs.

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LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES

6 Months Ended

Jun. 30, 2011

LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES

NOTE 6 - LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES

Major classifications of loans receivable are summarized as follows:

	June 30,		December 31,
	2011		2010
Real estate – construction	$	13,654,980	$	12,674,197
Real estate – mortgage		73,318,790		76,149,357
Commercial and industrial		8,293,690		11,602,305
Consumer and other		5,089,844		4,871,825
Total gross loans	$	100,357,304	$	105,297,684

The loan portfolio consisted of loans having                                                                           :

	June 30,		December 31,
	2011		2010
Variable rates loans	$	2,018,931	$	1,556,700
Fixed rates		98,338,373		103,740,984
Total gross loans	$	100,357,304	$	105,297,684

A summary of the allowance for loan losses for the six months ended June 30, 2011 and year ended December 31, 2010 is as follows:

	June 30,			December 31,
	2011			2010
Balance, beginning of year	$	2,019,497		$	2,053,340
Provision charged to operations		538,000			1,866,000
Recoveries on loans previously charged-off		6,188			11,932
Loans charged-off		(650,475	)		(1,911,775	)
Balance, end of period	$	1,913,210		$	2,019,497

The following is an analysis of the allowance for loan losses by class of loans for the six months ended June 30, 2011 and the year ended December 31, 2010

June 30, 2011

				Real Estate Loans
										Total
										Real
										Estate						Consumer
(Dollars in Thousands)	Total			Construction			Mortgage			Loans			Commercial			and Other
Beginning Balance	$	2,019		$	807		$	404		$	1,211		$	606		$	202
Provisions		538			412			64			476			50			12
Recoveries		6			-			3			3			-			3
Charge-offs		(650	)		(498	)		(77	)		(575	)		(60	)		(15	)
Ending balance	$	1,913		$	721		$	394		$	1,115		$	596		$	202

December 31, 2010

				Real Estate Loans
										Total
										Real
(Dollars in Thousands)										Estate						Consumer
	Total			Construction			Mortgage			Loans			Commercial			And Other
Beginning Balance	$	2,053		$	826		$	413		$	1,239		$	616		$	198
Provisions		1,866			746			373			1,119			560			187
Recoveries		12			-			-			-			4			8
Charge-offs		(1,912	)		(765	)		(382	)		(1,147	)		(574	)		(191	)
Ending balance	$	2,019		$	807		$	404		$	1,211		$	606		$	202

At June 30, 2011 and December 31, 2010 the allocation of the allowance for loan losses and the recorded investment in loans summarized on the basis of the Company’s impairment methodology was as follows:

June 30, 2011

			Real Estate Loans
							Total
							Real
(Dollars in Thousands)							Estate				Consumer
	Total		Construction		Mortgage		Loans		Commercial		and Other
Allowance for Loan Losses
Examined for Impairment
Individually	$	411	$	30	$	35	$	65	$	326	$	20
Collectively		1,502		691		359		1050		270		182
Allowance for Loan Losses	$	1,913	$	721	$	394	$	1,115	$	596	$	202
Total Loans
Examined for Impairment
Individually	$	8,338	$	1,708	$	1,141	$	2,849	$	5,311	$	178
Collectively		92,019		11,947		72,178		84,125		2,982		4,912
Total Loans	$	100,357	$	13,655	$	73,319	$	86,974	$	8,293	$	5,090

December 31, 2010

			Real Estate Loans
							Total
							Real
(Dollars in Thousands)							Estate				Consumer
	Total		Construction		Mortgage		Loans		Commercial		and Other
Allowance for Loan Losses
Examined for Impairment
Individually	$	373	$	296	$	25	$	321	$	40	$	12
Collectively		1,646		511		379		890		566		190
Allowance for Loan Losses	$	2,019	$	807	$	404	$	1,211	$	606	$	202
Total Loans
Examined for Impairment
Individually	$	7,703	$	3,162	$	4,121	$	7,283	$	303	$	117
Collectively		97,595		9,512		72,029		81,541		11,299		4,755
Total Loans	$	105,298		12,674		76,150		88,824		11,602		4,872

The Company identifies impaired loans through its normal internal loan review process.  Loans on the Company’s problem loan watch list are considered potentially impaired loans.  These loans are evaluated in determining whether all outstanding principal and interest are expected to be collected.  Loans are not considered impaired if a minimal delay occurs and all amounts due including accrued interest at the contractual interest rate for the period of delay are expected to be collected.

The following summarizes the Company’s impaired loans by class as of June 30, 2011 and December 31, 2010.

June 30, 2011
			Unpaid
(Dollars in Thousands)	Recorded		Principal		Related
	Investment		Balance		Allowance
With no related allowance recorded:
Real estate
Construction	$	1,578	$	1,578	$	-
Mortgage		829		865		-
Total real estate loans		2,407		2,443		-
Commercial		3,686		4,486		-
Consumer and other		126		126		-
		6,219		7,055		-
With an allowance recorded:
Real estate
Construction		130		315		30
Mortgage		312		466		35
Total real estate loans		442		781		65
Commercial		1,625		4,080		326
Consumer and other		52		52		20
		2,119		4,913		411
Total
Real estate
Construction		1,708		1,893		30
Mortgage		1,141		1,331		35
Total real estate loans		2,849		3,224		65
Commercial		5,311		8,566		326
Consumer and other		178		178		20
Total	$	8,338	$	11,968	$	411

December 31, 2010
			Unpaid
(Dollars in Thousands)	Recorded		Principal		Related
	Investment		Balance		Allowance
With no related allowance recorded:
Real estate
Construction	$	1,326	$	1,294	$	-
Mortgage		4,016		4,196		-
Total real estate loans		5,342		5,490		-
Commercial		218		249		-
Consumer and other		62		61		-
		5,622		5,800		-
With an allowance recorded:
Real estate
Construction		1,836		1,879		296
Mortgage		105		103		25
Total real estate loans		1,941		1,982		321
Commercial		85		741		40
Consumer and other		55		53		12
		2,081		2,776		373

			Unpaid
(Dollars in Thousands)	Recorded		Principal		Related
	Investment		Balance		Allowance
Total
Real estate
Construction	$	3,162	$	3,173	$	296
Mortgage		4,121		4,299		25
Total real estate loans		7,283		7,472		321
Commercial		303		990		40
Consumer and other		117		114		12
Total	$	7,703	$	8,576		373

The average recorded investment in impaired loans for the six months and year ended June 30, 2011 and December 31, 2010, was $7,787,247 and $8,512,074, respectively.

Nonaccrual loans were $4,403,484 and $4,805,658 at June 30, 2011 and December 31, 2010, respectively.

Interest income on impaired loans other than nonaccrual loans is recognized on an accrual basis. Interest income on nonaccrual loans is recognized only as collected.  During the six months ended June 30, 2011 and for the year ended December 31, 2010, interest income recognized on nonaccrual loans was $16,913 and $30,674, respectively.  If the nonaccrual loans had been accruing interest at their original contracted rates, related income would have been $147,828 and $275,415 for the six months ended June 30, 2011 and for the year ended December 31, 2010, respectively.

A summary of current, past due and nonaccrual loans as of June 30, 2011 and December 31, 2010 were as follows:

June 30, 2011
	Past Due		Past Due Over 90 days
(Dollars in Thousands)	30-89		And		Non-		Total				Total
	Days		Accruing		Accruing		Past Due		Current		Loans
Real estate
Construction	$	749	$	-	$	2,364	$	3,113	$	10,542	$	13,655
Mortgage		823		-		1,912		2,735		70,584		73,319
Total real estate loans		1,572		-		4,276		5,848		81,126		86,974
Commercial		166		-		68		234		8,059		8,293
Consumer and other		49		2		59		110		4,980		5,090
Totals	$	1,787	$	2	$	4,403	$	6,192	$	94,165	$	100,357

December 31, 2010
	Past Due		Past Due Over 90 days
(Dollars in Thousands)	30-89		and		Non-		Total				Total
	Days		Accruing		Accruing		Past Due		Current		Loans
Real estate
Construction	$	397	$	-	$	3,010	$	3,407	$	9,267	$	12,674
Mortgage		768		-		1,533		2,301		73,849		76,150
Total real estate loans		1,165		-		4,543		5,708		83,116		88,824
Commercial		99		-		203		302		11,300		11,602
Consumer and other		63		-		60		123		4,749		4,872
Totals	$	1,327	$	-	$	4,806	$	6,133	$	99,165	$	105,298

Loans are categorized into risk categories based on relevant information about the ability of borrowers to service their debt, such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The following definitions are utilized for risk ratings, which are consistent with the definitions used in supervisory guidance:

Special Mention - Loans classified as special mention have a potential weakness that deserves management's close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution's credit position at some future date.

Substandard - Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

Doubtful - Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass rated loans.

As of June 30, 2011 and December 31, 2010, and based on the most recent analysis performed, the risk category of loans by class of loans is as follows:

June 30, 2011
			Real Estate Loans
							Total
							Real
(Dollars in Thousands)							Estate				Consumer
	Total		Construction		Mortgage		Loans		Commercial		and Other
Pass	$	93,652	$	12,458	$	72,261	$	84,719	$	3,950	$	4,983
Special mention		179		28		41		69		66		44
Substandard		6,526		1,169		1,017		2,186		4,277		63
Doubtful		-		-		-		-		-		-
Total	$	100,357	$	13,655	$	73,319	$	86,974	$	8,293	$	5,090

December 31, 2010
			Real Estate Loans
							Total
							Real
(Dollars in Thousands)							Estate				Consumer
	Total		Construction		Mortgage		Loans		Commercial		and Other
Pass	$	98,620	$	8,847	$	76,150	$	84,997	$	9,793	$	3,830
Special mention		1,378		681		-		681		551		146
Substandard		5,300		3,146		-		3,146		1,258		896
Doubtful		-		-		-		-		-
Total	$	105,298	$	12,674	$	76,150	$	88,824	$	11,602	$	4,872

The Company enters into financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers.  These financial instruments consist of commitments to extend credit and standby letters of credit.  Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract.  Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. A commitment involves, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the balance sheet.  The Company’s exposure to credit loss in the event of nonperformance by the other parties to the instrument is represented by the contractual notional amount of the instrument. Since certain commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements.  The Company uses the same credit policies in making commitments to extend credit as it does for on-balance-sheet instruments.  Letters of credit are conditional commitments issued to guarantee a customer’s performance to a third party and have essentially the same credit risk as other lending facilities.

Collateral held for commitments to extend credit and standby letters of credit varies but may include accounts receivable, inventory, property, plant, equipment, and income-producing commercial properties.

The following table summarizes the Company’s off-balance sheet financial instruments as of June 30, 2011 and December 31, 2010 whose contract amounts represent credit risk:

	June 30,		December 31,
	2011		2010
Commitments to extend credit	$	5,463,000	$	5,855,857
Standby letters of credit		847,000		850,000

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Condensed Consolidated Statement of Shareholders' Equity and Comprehensive Income (Parenthetical) (USD $)	6 Months Ended
	Jun. 30, 2011	Jun. 30, 2010
Cash dividends paid, per share	$ 0.50	$ 0.50
Other comprehensive income, tax expense	$ 239,308	$ 53,060

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RECENT ACCOUNTING PRONOUNCEMENTS

6 Months Ended

Jun. 30, 2011

RECENT ACCOUNTING PRONOUNCEMENTS

NOTE 2 - RECENT ACCOUNTING PRONOUNCEMENTS

The following is a summary of recent authoritative pronouncements that could impact the accounting, reporting, and / or disclosure of financial information by the Company.

In July 2010, the Receivables topic of the Accounting Standards Codification (“ASC”) was amended by Accounting Standards Update (“ASU”) 2010-20 to require expanded disclosures related to a company’s allowance for credit losses and the credit quality of its financing receivables. The amendments require the allowance disclosures to be provided on a disaggregated basis.  The Company is required to include these disclosures in its interim and annual financial statements.  See Note. 6.

Disclosures about Troubled Debt Restructurings (“TDRs”) required by ASU 2010-20 were deferred by the Financial Accounting Standards Board (“FASB”) in ASU 2011-01 issued in January 2011. In April 2011 the FASB issued ASU 2011-02 to assist creditors with their determination of when a restructuring is a TDR.   The determination is based on whether the restructuring constitutes a concession and whether the debtor is experiencing financial difficulties as both events must be present.

Disclosures related to TDRs under ASU 2010-20 will be effective for reporting periods beginning after June 15, 2011.

In April 2011, the criteria used to determine effective control of transferred assets in the Transfers and Servicing topic of the ASC was amended by ASU 2011-03.  The requirement for the transferor to have the ability to repurchase or redeem the financial assets on substantially the agreed terms and the collateral maintenance implementation guidance related to that criterion were removed from the assessment of effective control.  The other criteria to assess effective control were not changed.  The amendments are effective for the Company beginning January 1, 2012 but are not expected to have a material effect on the financial statements.

ASU 2011-04 was issued in May 2011 to amend the Fair Value Measurement topic of the ASC by clarifying the application of existing fair value measurement and disclosure requirements and by changing particular principles or requirements for measuring fair value or for disclosing information about fair value measurements.  The amendments will be effective for the Company beginning January 1, 2012 but are not expected to have a material effect on the financial statements.

The Comprehensive Income topic of the ASC was amended in June 2011.  The amendment eliminates the option to present other comprehensive income as a part of the statement of changes in stockholders’ equity.  The amendment requires consecutive presentation of the statement of net income and other comprehensive income and requires an entity to present reclassification adjustments from other comprehensive income to net income on the face of the financial statements.  The amendments will be applicable to the Company on January 1, 2012 and will be applied retrospectively.

Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies are not expected to have a material impact on the Company’s financial position, results of operations or cash flows.

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RECLASSIFICATIONS

6 Months Ended

Jun. 30, 2011

RECLASSIFICATIONS

NOTE 3 - RECLASSIFICATIONS

Certain captions and amounts in the financial statements in the Company’s Form 10-Q for the quarter ended June 30, 2010 and Form 10-K for the year ended December 31, 2010 were reclassified to conform to the June 30, 2011 presentation.

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COMPREHENSIVE INCOME

6 Months Ended

Jun. 30, 2011

COMPREHENSIVE INCOME

NOTE 4 - COMPREHENSIVE INCOME

Accounting principles generally require that recognized income, expenses, gains, and losses be included in net income.  Although certain changes in assets and liabilities, such as unrealized gains and losses on available-for-sale securities, are reported as a separate component of the equity section of the balance sheet, such items, along with net income, are components of comprehensive income.

The components of other comprehensive income and related tax effects are as follows:

			Tax
	Pre-tax		(Expense)			Net-of-tax
	Amount		Benefit			Amount
For the Three Months Ended June 30, 2011:
Unrealized gains on securities available-for-sale	$	573,632	$	(197,903	)	$	375,729
Reclassification adjustment for gains (losses) in net income		-		-			-
Other Comprehensive income	$	573,632	$	(197,903	)	$	375,729
For the Three Months Ended June 30, 2010:
Unrealized gains on securities available-for-sale	$	96,016	$	(33,126	)	$	62,890
Reclassification adjustment for gains (losses) in net income		-		-			-
Other Comprehensive income	$	96,016	$	(33,126	)	$	62,890
For the Six Months Ended June 30, 2011:
Unrealized gains on securities available-for-sale	$	693,646	$	(239,308	)	$	454,338
Reclassification adjustment for gains (losses) in net income		-		-			-
Other Comprehensive income	$	693,646	$	(239,308	)	$	454,338
For the Six Months Ended June 30, 2010:
Unrealized gains on securities available-for-sale	$	153,797	$	(53,060	)	$	100,737
Reclassification adjustment for gains (losses) in net income		-		-			-
Other Comprehensive income	$	153,797	$	(53,060	)	$	100,737

Accumulated other comprehensive income consists of the net unrealized gains and (losses) on securities available-for sale, net of the deferred tax effects.

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Condensed Consolidated Statement of Shareholders' Equity and Comprehensive Income (USD $)	Total	Common stock	Capital Surplus	Accumulated Other Comprehensive Income (Loss)	Retained Earnings	Treasury Stock
Beginning Balance at Dec. 31, 2009	$ 17,745,653	$ 1,500,000	$ 1,737,924	$ 286,072	$ 18,440,398	$ (4,218,741)
Beginning Balance (in shares) at Dec. 31, 2009		300,000
Cash dividends paid ($ .50 per share in 2011 and $ .50 per share in 2010)	(117,001)				(117,001)
Net income(loss) for the period	(31,575)				(31,575)
Other comprehensive income, net of tax expense of $239,308 in 2011 and $53,060 in 2010	100,737			100,737
Comprehensive income	69,162
Purchase of treasury stock	(98,401)					(98,401)
Ending Balance at Jun. 30, 2010	17,599,413	1,500,000	1,737,924	386,809	18,291,822	(4,317,142)
Ending Balance (in shares) at Jun. 30, 2010		300,000
Beginning Balance at Dec. 31, 2010	17,638,837	1,500,000	1,737,924	(64,752)	18,782,807	(4,317,142)
Beginning Balance (in shares) at Dec. 31, 2010		300,000
Cash dividends paid ($ .50 per share in 2011 and $ .50 per share in 2010)	(116,501)				(116,501)
Net income(loss) for the period	370,471				370,471
Other comprehensive income, net of tax expense of $239,308 in 2011 and $53,060 in 2010	454,338			454,338
Comprehensive income	824,809
Ending Balance at Jun. 30, 2011	$ 18,347,145	$ 1,500,000	$ 1,737,924	$ 389,586	$ 19,036,777	$ (4,317,142)
Ending Balance (in shares) at Jun. 30, 2011		300,000

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Condensed Consolidated Statements of Cash Flows (USD $)	6 Months Ended
	Jun. 30, 2011	Jun. 30, 2010
Cash flows from operating activities:
Net income (loss)	$ 370,471	$ (31,575)
Adjustments to reconcile net income to net cash Provided (used) by operating activities:
Provision for loan losses	538,000	1,211,000
Depreciation expense	112,270	118,895
Loss on sale of other real estate owned	21,432
Net premium amortization of investment securities	13,838	32,825
(Increase) decrease in accrued interest receivable	(13,874)	13,569
Decrease in accrued interest payable	(97,030)	(117,789)
Decrease in other assets	168,638	214,112
Increase in other liabilities	210	33,676
Net cash provided by operating activities	1,113,955	1,474,713
Cash flows from investing activities:
Proceeds from maturities of securities available-for-sale	1,844,296	4,854,116
Purchases of securities available-for-sale	(5,482,911)	(1,599,200)
Proceeds from maturities of securities held-to-maturity		265,000
(Increase) decrease of nonmarketable equity securities	10,100	(100)
Net decrease in loans to customers	3,758,104	3,474,217
Net decrease in time deposits in other banks	250,000	250,000
Proceeds from sales of other real estate owned	295,218
Purchases of premises and equipment	(33,282)	(24,828)
Net cash provided by investing activities	641,525	7,219,205
Cash flows from financing activities:
Net increase (decrease) in demand deposits, interest-bearing transaction accounts and savings accounts	767,382	(2,317,817)
Net decrease in time deposits	(160,006)	(1,088,673)
Cash dividends paid	(116,501)	(117,001)
Purchase of treasury stock		(98,401)
Net cash provided (used) by financing activities	490,875	(3,621,892)
Net increase in cash and cash equivalents	2,246,355	5,072,026
Cash and cash equivalents, beginning of period	16,177,800	17,694,266
Cash and cash equivalents, end of period	18,424,155	22,766,292
Cash paid during the period for:
Income taxes	50,000
Interest	877,850	1,283,027
Supplemental noncash investing and financing activities
Foreclosures on loans	537,989
Net change in valuation allowance - available-for-sale	$ 454,338	$ 100,737

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SUBSEQUENT EVENTS

6 Months Ended

Jun. 30, 2011

SUBSEQUENT EVENTS

NOTE 9 - SUBSEQUENT EVENTS

Subsequent eventsare events or transactions that occur after the balance sheet date but before financial statements are issued. Recognized subsequent events are events or transactions that provide additional evidence about conditions that existed at the date of the balance sheet, including the estimates inherent in the process of preparing financial statements.  Unrecognized subsequent events are events that provide evidence about conditions that did not exist at the date of the balance sheet but arose after that date.  Management has reviewed events occurring through the date the financial statements were issued and no subsequent events occurred that require accrual or disclosure.

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Condensed Consolidated Balance Sheets (USD $)	Jun. 30, 2011	Dec. 31, 2010
Cash and cash equivalents:
Cash and due from banks	$ 3,748,668	$ 4,206,974
Interest bearing deposits	12,900,487	9,966,826
Federal funds sold	1,775,000	2,004,000
Total cash and cash equivalents	18,424,155	16,177,800
Time deposits with other banks	750,000	1,000,000
Investment securities:
Securities available-for-sale	31,273,755	26,955,350
Securities held-to-maturity (estimated fair value of $309,287 in 2011 and $309,023 in 2010)	299,903	299,885
Nonmarketable equity securities	292,200	302,300
Total investment securities	31,865,858	27,557,535
Loans receivable	100,357,304	105,297,684
Less allowance for loan losses	(1,913,210)	(2,019,497)
Loans receivable, net	98,444,094	103,278,187
Premises and equipment, net	2,824,224	2,903,212
Accrued interest receivable	799,733	785,859
Other real estate owned	2,985,528	2,764,189
Other assets	953,947	1,361,893
Total assets	157,047,539	155,828,675
Deposits:
Noninterest-bearing transaction accounts	12,673,102	14,077,860
Interest-bearing transaction accounts	21,931,962	21,295,198
Money market savings accounts	4,411,096	4,116,167
Savings	15,693,014	14,452,567
Time deposits $100,000 and over	46,465,066	46,142,153
Other time deposits	37,016,957	37,499,876
Total deposits	138,191,197	137,583,821
Accrued interest payable	354,301	451,331
Other liabilities	154,896	154,686
Total liabilities	138,700,394	138,189,838
Shareholders' Equity:
Preferred stock, $5 par value, 3,000,000 shares authorized and unissued
Common stock, $5 par value, 3,000,000 shares authorized; 300,000 shares issued	1,500,000	1,500,000
Capital surplus	1,737,924	1,737,924
Retained earnings	19,036,777	18,782,807
Accumulated other comprehensive income (loss)	389,586	(64,752)
Treasury Stock (66,997 shares at cost)	(4,317,142)	(4,317,142)
Total shareholders' equity	18,347,145	17,638,837
Total liabilities and shareholders' equity	$ 157,047,539	$ 155,828,675